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FEDERAL RESERVE BANK
C1-F
OFFICE OF
-VEYMOIC
DEPUT7V-00
Nov Ember 14th
1923
Mr. Walter L. Eddy, Secretary,
Federal Reserve Board,
Washington, D. C.
Dear Mr. Eddy:
Referring to your wire dated November
12th(trith further reference to Statement of Purchases
and Sales of U. S. Securities handled by this bank each
week ending Wednesday since January 1st, 1923, I an handing you herein corrected copy covering these transactions
and regret that the first statement submitted was in error.
Trusting that our failure to furnish you
a correct report in the first instance has not seriously
inconvenienced you and that the enclosed is what you
desire, I am
Very tnzly yours,
L. C. Adelson,
Deputy Governor.
Enclosure.
: 4
•
........
7 6
_
tiro y
10
Form 118
TE
//
1
A
1 / isA
lb
FEDERAL RESERVE
JAR
LEASED WIRE SERVICE
WASH I NGTON
,
7,
7Avember 12, 19231
,
Adelson - Atlanta.
X 10
Referring to stato:r.e4 "howpag U. 3. soourities purchased and sold
with vur November 9 letter, we find that in a number of oases figure'
enclosed
do not agree with balance sheets Form 34, I.e., if purohases are added to and
sales deducted from balance shown on Form 34 at beginning of week the result
doos not agree with the balance shown on Perm 34 at end of week. Zindly
advise reason for above differences, and if necessary uail revised statement.
•
FEDERAL RESERVE BANK
Nviv
CIF _Ae‘..7rILAN PZ1._
OFFICE OF
DErury GO-VETUvOlt_
November 9th
1 9 23
Mr. Walter L. Eddy, Secretary,
Federal Reserve Board,
Washington, D. C.
Dear Yr. Eddy:
In accordance with your telegram of
November 7th, there is encl osed herein St atement of
Purchases and Sales of U. S. Securities bandied by
this bank each wedr:. ending Wednesday since January 1,
1923. This statement does not include ony redemptions
or trimsactions handled by our Fiscal Agency Departmnt, but embrac es only thos e passing through our Investment Account.
Trusting this statement contains the
desired information, I am
Very truly yours,
L. C. Ike son,
Creed Taylor.
enclosure
•
•it
%
•
•
" CORRECTED COPY "
STATEZENT SHOWING U. S. SECURITIES PURCHASED AND SOLD BY THE FEDERAL In:SERVE
BANK OF ATLANTA EACH WEEK ENDING WEDNESDAY SINCE: JANUARY 1st 1923
— 1—
Week
Ending
1-3-23
1-101-17
1-24
1-31
2-7
2-14
2-21
2-28
3-7
3-14
3-21
3-28
4-4
4-11
4-18
4-25
5-2
5-9
5-16
5-23
5-30
6-6
6-13
6-20
6-27
7-4
7-11
7-18
7-25
8-1
8-8
8-15
8-22
8-29
9-5
9-12
9-19
9-26
10-3
10-10
10-17
1024
10-31
11-7
- 2-
: Other Fed. Res. Banks : Alien Property Custodian : Federal
Land
Sales
• purchase : Sales
: Purchase
:_ Baaks
r
- 5-
- 4
- 3-
: All Other Transactions
- B - A :
:
:
: Sales to U S Treas includins : Redemptions at Maturity
Sales
• Redemptions before Maturity :Exclusive of Tamp 1-Day Ctfs: Purchase :
391 952
0
0
1 000 000
1 500 000/
5 000 000/
ett-1)otary.400-et.t)
5 000 000
7 500 000
419 050
/0
451 050"
125 700Y
401 150"
-of
457 650
194 650
31
/.210011-- 272 400
160 550
182 900
885 750
948 452 .7
1 578 300
108 450/
20V 200/
02
875 vvy
152 9050 1.
3 r,7e0 _3331'35 200
7
33 650 1
63 900
412 100 t/
432 900_/
51 400"
ao 100 ic
53 302 Y'
23 200-!__
66 100J/
33 150 v'
40 900/
24 70Q %7
349 900/ 2 347 10
210 102 ,x
179 7°C)IT
'
52 900
63 650___ _--------------i7
7
„
69 556___ --1 -----7-n
LA ,UST -80 400
120 804
125 550 /
210 300v
2
L--;!1
47
61
41 202 !
4
.,
c5Y
P
156
14 900
-54 600
15 900_... -- I
=c
(
148 752
150 650_33
271 0501
259 500L:',..244
289 100v/
363 0001
(
.-. 445 950:_
1
66 652 v
54 200 i''
17
27 350
0
80 450 '
,
45 7561(_____----------- .
......cri
111 000
165 350
52 650"
41 450 /L----7
217 602 V/
167 800`/
_,„___(4
,
"
----4;
105 100
133 600 v
179 250
"
110 600
:
11
:
109 202
149 150/
182 950
181 400
393 750
430 400v
70 300 V
1_4
57 306
.
124_50 w'
114
--; ---- V---2 7 150
2
400q2
fr
1/E
'1-: 1
,T.Q47;q4.277
3/
9 36
STATELIENT SHOWING U. S. SECURITIES PURCHASED AND SOLD BY THE FEDERAL RESERVE
MITESDAY SINCE JANUAM- 1st 1923.
BANK OF ATLANTA EACH WMC. EITDING 1,71,
- 1Week
Endi
••
1-3-23
1-10
1-17
-1-24
1-31
2-72-14
2-21
2-28
-3-7
3-143-21
3-28
4-44-11
4-18
4-25
5-2
5-9
5-16
5-23
5-30
6-66-13
6-20
6-27
7-47-11
7-18
7-25
8-1
8-8
8-15
8-22
8-29
9-59-12
9-19
9-26
10-310-10
10-17
10-24
10-31
11-7-
-3-
-2-
- 5-
4-
:All other Transactions
- B :
-A Other Fed. Res. Banks : Alien Property Custodian. : Federal Land :
:Redemptions at Maturity
:
Banks : Sales to U S Treas includ_Sa1es
:
eden tions before Iaturity:Exclusive of Temp 1-pqy Ctfs: „Purchase 1
has
es
;
Purchase
9
51. ?,g5t
1
/
v
1 000 000
1 500 000,./
5 000 000 ,
5 000 0001
5 000 000";
7 500 000 v
3
308 950d 0 335 550
ID
V
439 850 ( 451 0501
4 50262 150"
125 700
192 850V
/
455 650,
272 300
3/
160 550
948 750"
182 900/,14t. 1
885 450
1 578 4007
01
z(
209 200/
,
108 450 ./'
11 950.320-5004
33 200 7f4A- 7
135 700
/
63 900/
32 8501
,
412 1001
,
32 0 /
4713:0Z 4
51 400
53 302
24
33 150
O
5° 6-0 t
16G,Ic"
IE
24700V
40 900
349 900, 2 347 100'",
/
210 102 11916•154 700011-4
1
)
23gd 88-6-50 V
52 9004(
80 400"
69 550/
1
120 80Q`i
125 550" 5i
211 300: I Li ,
'-a-15-7-501 3 13.
41 200
110 400
402 100
157 300
74;
74 100
15 000
27
15 900
1E4 600
tq
151 900 : 153 650)-(.. (
?
(
252 900
256 500
/c
258 100= -- 229- 000 385 950/
.
3$3 COO
66 650
51 2001_447
e
27 350
17
80 450
45 750
")/V
165 350
111 000
(
41 450 , 2,-/
52 650
16'7 Boo
217 600
C'
133 60c
7
105 100
168 250
179 250
/7
2110 600
35 800
149 1504C 3
109 202
181 400
182 950
' /0
215 900
195 250
/7
70 300
57 300
31
124: 500
114 400
229 102
2271504v
14
100
/
r
1
•
rEDERAL RESERVE E3ANK
OF BOSTON
•-•••
November 8,1923.
Federal Reserve Board,
Washington,
D. C.
Gent lemen:
.
As r,1.4uested in your telegram of November 7 you will find listed below the
total U. S. Goverment Securities held by this bank under Renurchase
Agreements, close of butiiness each Wednesday since January 1, 1923:
7,241, 3044
Amountj
Month
Amount
Month
Stt
14
b
(
/1 ci 6 4
1
•
7;..7;
•
•
•
04
/t
/9'2.
6 14 7
1
tt
c
I 1.) ,/ I
/7.
t) 3$/
.17. 14
•67a
January 3
"
10
ti
17
214
•
31
o February 7
114
"
1 4)
ft
21
28
1i-53
March
7
0
ft
114
21
28
S
April
14
2•co
,
ft
11
LS
Al
25
2
:3S o May
-
• g
• 7'7ô
s
.5314
•
ft
g6
.
1.:744-.)
9
lb
23
29
ft
ft
=1c
CBP/M
34,inzitrt) June
3(,lig %lel "
)
,
6
76
$190,6E50
56c
ft 20‘,./07/04
660,500
'100
1,737,590
if/
27i/- it/
76()July 3
:
7 c
1,626,150 . 1"/
143 05° " 11#7o
669,100
801,6E4
0
1,255,312 ,9,1 i-eqz
"
366,260
537,154
589,550
260,580
"
-5., 0 "
;
c
12q446 ss- 378,200
19 56,3 .5'SO
-
?
3s
3.
.3
(D.
3
3
000
264- o5311.-c
‘3
15 .17,
196,900
Oct.3 14-sta /74: 991,870.
,
,6 2.13& "
103/( 60 250,000
515,250
2
37 1 . ek 6.; ft
17 7%7LO 170,00o
397,450
`0
5 .7„r,
37, tb*c.)
1
4
000
567,006
31 ' 1,084,b50
-4
9,-(1° "
161,350
November 7,.... $ 145,000
-7t-eLk-
3
868,550
1,103,5oo
25387//s;:, 321,000
773,950
Aug. 1 if066,600
3,960 ,z't :4'1%3 0,5 " 8
C
"15..7s ).-e;(.. 705,750
. ,
3-,
1443
j 0 re
)
22i,1 6/.s `747, 1,12b,300
262,850 13 ft
-0
06
29
(
337,225 0 t,
Tero 69,950
1914,550
69,300 '0t
Sept 5 ,!;
"
I
i
3
3
184 673
749,1403 ;41 H3 ••
105,785 10 .c1,7
313,920 to ct,.'t
54,700 b" 373
3
Cbett
3
3 51,f
3 50
s SY)?
3 ,S;
?2-0
Yours very truly,
E. G. Hult,
Assistant Cashier.
II •
FEDERAL RESERVE BANK
OF NEW YORK
ATTNNEWN OF:
:;Ir. W. L. Eddy.
November 6, 1923.
Sirs:
For Governor Strong,I take pleasure in enclosing the 0
statement requested by you in yoUr telegram of yesterday's date,s.
showing the total amount of United States Government securities
held by this bank under repurchase agreement at the close of
business on each Wednesday,from January 1 to November 1, 1923.
Very truly yours,
J. h. OkoE,
Deputy Governor.
Federal Reserve Board,
Washington, D. C.
Enc.
9
•
•
•
November 8, 1923.
U. S. COVERNW.ENT SECURITI2S HELD UNDER REPURCHASE AGR.:1:.ENT
(Close each Wednesday, January 1 to Novenber 1, 1923.)
DATE
January
3
10
17
24
31
ALOUNT HELD
11
11
February
q6,g0 7.
, 5-0
-- q,464,6ro
f ,
34,290,000.
34,435,200.
5,730,000.
301700,000.
22,919 1900:
-S0
14.1 ,P10, I .
1
,
0
in , Tr!, 75-
17,656,600.
18,585,500.
161441,500.
21,649 $000.
7
14
21
28
4
11
18
25
v,
4,
,47, 7.ca
1 4,141
,
/7 /,‘,/, 7,76
1-4,12.
/g,g1,5,750
.,
)7 , D,o, iSa
i q , o 4o,1..(0
//, /LI?, 7.go
53607,000.
4,228,000.
6,513,000.
13,589,600.
7,677,000,
5,88 2,000.
7,892,000.
-
9
16
23
30
kit,S11,7 6
51, / 4- ce, 7 s0
1/6, i1 -0 , 0%ra
/, 1,-9,6,dro
21590,000.
1,224,000.
6,0001000.
20,001,300.
113077,300.
6
13
14, /47, /
/St)
20
If
-vo,,s--07, g so
/hit, il-76,q50
48,750
i/o, 04
7
14
11
It
March
ft
April
11
May
ft
ft
June
11
21
28
27
4
11
18
25
August
to
11
ft
11
October
11
It
ft
11
/0 ?SSO
,
/
,
3,678 3500.
.3,8231 500a
9,8103800.
1110861400.
5,6 *s, 7.5'0
-o
• A 416 76
--/
/ 1 4/0, /SO
9,572,000.
5,475,000.
4,5001000.
2,697,000.
1122611400.
15
22
29
12
19
26
3
10
17
24
31
TOTAL
1- 1
191
:
17 1232,400.
16,101,000.
8,895,000.
8,8103000.
9 efsg, 67,70
t .7")., 573, riSo 12,425,000.
5,700,000.
ri,,,-, 0 GS '15"0 101920000.
314001000.
4,
7. )
54
9 760.
3000.
/ 0,470 8,75-(3
rii8,
/.137,/
3'7o0
029,652,500.
14 4
7:
;
0
4q- S 74.-`
)
is
-0
ref g
14% ri&
-0
°V
II
1L-1-s igo
114-a
)s" 7 0
14
; 7s-50
/if
7s-o
/4-1 730
3 3Stt '76-0
4i
-g '7S-0
rz.
;48 1s°
4'' 7-co
2
q8
lq 8
14,999,000.
10,4611000*
191361,100.
500.
29,994,
8
September
II
3l , / 4Z,. 4.5n
078 ii-So
0'i'3 7.go
104 z s
/4'-8 7so
7s
-b
iy-8
34 61, g 750
,
,
34- t.4.6
7.co
7-CO
r '
60
I
g
74 O
'
750
i
,
8
g
qso
75
6
aso
7
11
:
'750
blqS r1S0
I 'I g 750
,
I I 1S 7go
1 I Li
'15-0
I '1 5 9.50
1
7 -0
I S '76 0
Hg
q
950
1 07 ..(4 3
2 0
0
•
•
••
1
,
•
FEDERAL RESERVE BANK OF CHICAGO
230 SOUTH
LA SALLE
STR E ET
November 8, 1923.
Mr. W. L. Eddy, Assistant Secretary,
Federal Reserve Board,
Washington.
Dear Sir:
(r)',
As requested in your telegram of November seventh,
we held U. S. Treasury Certificates of Indebtedness and
Notes under repurchase agreement with dealers at the close
of business each Wednesday since January 1, 1923, as follows:
Amount
Date
.11
:January
c January
,
7 74f r
January
41 47 3
00 January
1,.03 6
.
1. 4-0 January
brt
February
February
7,57:
,
7ti LI
February
-",,--e.3 6a3 February
74;5
, 6,..0 March
73
,
660 Ma rch
--.,g
1
March
tfs- 0 s• 14. Soo March
£j g c, 7
'
April
April
April
I/
Plis" 8 I 3 qso April
/ So May
14. 3 / a- ---o-t) May
;
1-5 7'7 4,0 may
May
116 2.
May
3,
10,
17,
24,
31,
7,
14,
21,
28,
7,
14,
21,
28,
4,
11,
18,
25,
2,
9,
16,
23,
Date
$2,794,900
2,634,000
1,708,800
1,147,300
741,000
2,769,650
2,553,200
2,254,600
2,313,100
1,512,700
2,097,100
1,352,000
3,257,600
1,710,700
1,818,400
896,000 51,765,566
1,623,750
2,266,300
1,581,100
4,378,700
1,191,800
Amount
June
June
June
June
July
July
July
July
August
August
August
August
August
September
September
September
September
October
October
October
October
October
November
6, *1,407,500
13,
2,826,200
,896,800
20,
27,
3,603,700
5,958,600
5,7201300
11,
18,
6,210,500
25,
3,770,100
4,994,700
1,
3,808,400
8,
3,268,700
15,
2,604,200
22,
3,359,400
29,
5,
3,218,400
4,261,400
12,
4,529,400
19,
2,188,600
26,
3,
1,420,800
10,
512,500
17,
721,200
24,
2,355,800
3,411,000
31,
7,
2,630,300
Very truly yours,
. R. McKay,
DeTuty Governor
D F
s'i7
'
814 /4-1
I .C4 1
/
(3 4,
0-e,2
c
.
••
FEDERAL RESERVE BANK
OF
ST. Louis
November 8, 1923.
Federal Reserve Board,
Washington.
At+ention Mr. Eddy.
Gen+lemen:In compliance with your telegram of
yesterday, I am enclosing statement giving the
amount of United States Government securities
sold by this bank during each week ending
Wednesday, from January 1 to October 31, 1923.
Yours very truly,
Asst. Federal Reserve Agent.
OEV :SP.
,KAOUNT OF U. S. SECURITIES SOLD BY THIS BANK DURING
STATEMENT SHOUI,-,<I
EACH WEEK ENDING WEDNESDAY SINCt JANUARY 1, 1923 TO OCTOBER 31, 1923.
Other Federal
Reserve Banks
Week ending
3, 1923
January
10
17
24
31
7, 1923
February
14
21
28
7, 1923
larch
14
21
28
4, 1923
April
11
18
25
2, 1923
Nay
9
16
23
30
6
June
13
20
27
4, 1923
Uly
11
18
25
1, 1923
August
8
15
22
29
•
None
Alien Property Custodian
None
Federal
Land Banks
None
U. S. Treasury ineluding redemptions
before maturity.
None
Redemptions by U. S. Treas.urer at maturity exclusive
of temporary one day certificates.
None
II
If
If
H
II
II
H
H
It
It
If
H
II
II
II
H
H
It
II
II
IS
II
It
IS
IS
H
H
H
II
H
If
II
II
Il
500,000
None
II
H
It
H
II
II
II
If
439,000
None
It
it
IS
It
ii
u
it
H
II
1,343,000
None
II
H
It
H
It
II
It
11
H
It
It
II
2,994,000
None
It
II
If
H
11
II
II
11
IS
II
It
It
11
II
1,000,000
None
11
II
ft
2,500,000
Nene
It
II
11
U
H
H
II
II
It
If
If
H
H
If
II
It
It
H
3,051,000
None
1,152,600
None
u
u
u
it
u
800,000
None
u
u
u
u
It
u
H
II
It
82,300
None
u
U
H
O
it
U
I,
II
it
u
u
u
u
u
ti
IS
u
3,500,000
None
H
it
u
Page 2.
Continued.
Other Federal
Keserve Banks
:leek ending
September 5, 1923
12
19
26
3, 1923
October
10
17
24
31
•
•
TOTAL
•
None
Alien Property Custodian
Federal
Land Banks
lone
None
Redemptions by U. S. TreasU. S. Treasury in- urer at maturity exclusive
cludinp; redemptions of temporary one day certificates.
before maturity.
None
None
II
II
Al
11
If
II
II
Al
II
Al
Al
If
II
II
II
It
II
If
If
11
II
II
II
11
If
2,650,000
Uono
II
II
,732,300
i:one
None
1,018,300
None
II
;13,058,900
II
11
II
Al
3.,239,900
TELEGRAM•
III 41/
r:1)
1.)
14 SERVE SYSTEM
FEDERA
7 %
7
?
BED WIRE SERVICE)
c.
•
RECEIVED AT WASHINGTON, D:C.
)olis Lov 5th 23 1005A
Lanneal
,
,.......
.Ed.dy
Washington
i
c l
Referring your wire yesterdi securities held by our banl: under
repurchase agreement" 6acednesday since January 1,123.
/
0 ,
,. 1,1a.-- 9, 4,25o,000
3 4,12L30.4.47,5
Sept 19 5,752,000Jan
1,:ay 16 4,250,000
Sept 26 6,502,000
. _0
10
Jan 17 ,t743t4ev_or 3,2 s ida:y- 23 4,500,000
6,252,000
Oct 3
)c) ,
,
Jan
30 4,500,000
Llay
Oc 10 6,502,000
Jan 24----'
,
/l.:
i
Jun 6 .
Oct 17 6,502,000
Jan 31 --.:.,000 Oct 24 6,502,000
,
Jun 13
.
11eb 7 750,000
Juno 20 5,000,000 Oct 31
,
Feb 11 1,000,000
Jun 27 6,250,000
Feb 21 1,500,000
Jul 4 6,000,000
Young
Feb 28 2,250,000
Jul 11 6,000,000
7 2,500,000
Jul 18 4e3,550,000
1140A
Liar 14 3,250,000
Jul 25 3,550,000
iJar 21 3,750,000
Aug 1 3,900,000
ijar 28 4,250,000
Aug 8 4,450,000
Apr A 4,250,000 ‘ro Aug 15 4,450,000
Apr 11 4t-3€ fTo
1
-"
/
,
'
Aug 22 LT:.):
2g
Apr 18 4,750,000
Aug 29
kor 25 5,000,000
SeDt 5 5,450,000
Elay 2 4,250,000
Sep 12 5,450,000
OMCII
2-11901
CIOVERNIIINT PRINT.0
SEP •.1
.„.
sktik.AA
•
('
IA
TEL GRAM
FEDERAL
(LEA
j
r/8
•
"
E: SYSTEM /15777
WIRE tERVICE)
,
\RECEIVED AT WASHINGTON, D. C.,
KaaluasCity Do — n
4444 4
-c 4
Eddy
Washin :ton
(!)
Th
2
(Aculat U$ Goe- 1- ent, securities hold by this
your V112QLh..
Replyi
at close of business each weCLuesday
ban: under repurchase agreelaent
Earch 212500,000 March 28th
5inc6 January 12t is as follows.
A,ril 11 % 1,00C,000 iril 18 . 1,000,000
;500,000 ,Aoril 4 1,000,00Q
;
11-;:ril 25 ta,O0O,000 :Lay 2 '500,000 iday 9 %i 6215,000 hay 16 625,000
Juno 6 i;720,,000 June 15 1720,000
isizy 25 ,I625,000 Llay 30 ;720,000
2,00c,000 - July 11 ,j2,000,00C
.
June 20 1/20,000 June 27 500,000 July 4
i1,135,000 Ausust .1 %,i1,000,000 Aujust 8
;1,165,000 July 25
July 18 .4
Auust 22 s o-i 1,000,000 August 29',A,000,000 .Se -d:,t 19
600,000 Se()tard'oer 26 ;500,000 October 3 0.,200,000 October 10
1,200,000 October 17 1,500,000 Oct 2/1 1,600,000. There ;:ere no
securities held under repurchase agreements on the ednesdays not
indicated above.
Bailey
Digitized 00VERN1111121,riENT1110
for FRASER
2-11901
1207p
0
-%
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.,
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97
TELEpRAM
,.\ \
L
40
•
FEDERA'l
le
•
•
bERVE SYSTEM
-
(ED WIRE SERVICE)
‘
,
RECEIVED AT WASHINGTON, D. C..
Dallas i1a
lov 6
Eddy
Jahn
611
Your wire
-allited States Governzioaat securities held
this bank under reurchase dvjroeiiont
each wednesday since January 1-
'
4 1 4-
010:Le business
Week ending January 17th
•.
through March 14 •.„51,100,000 March 21 11,500,000 Liarch 26throug:,
;1.1.1 600,000 A -12ri1 11 through koril 16 %g;,100,000 april
2-11901
,
001..7111XT PRINTDIO
June
;:,;1,600,000 none on all other dates.
erson
1257p
•
TELEGRAM
FEDERAL RESERVE BOARD
LEASED WIRE SERVICE
WASH I NGTON
November 6, 1963.
Harding - Bozton
Strond - New Yor%
..aougal - Chiang°
4
21e:ise mail tydelt if practicable statement Lhwing
amount of U. 3. Government securities held by yoar bank
total
undor_ropqrse aimeement at close of busincol.; oa cach WedLesduy
---*Dim) January i.
ETADY.
1111
•
TELEGRAM
FEDERAL
I•
RESERVE
BOARb
LEASED WI RE SERVICE
WASHINGTON
Ve464
November 6, 1923.
Young
Linmeapolis
Batioi- 1:amn3 City
Lc.::Inney
f
',?
• 6.
Y4Ilas
Goverment securities
?leatie wire total amolLut of U.
businesn
held by your bauk undos_rcipprohacJe agreowent at u1o5e e2
on each Wodneuday bin= Jury 1.
13111)Y.
4)
Triv
Voran. 148
•
•
FEDEIR
•
GRAM •
SERVE BOARD
SED WIRE SERVICE
WASH I NGTON
November 6, 1923,
e.7ellborn -
lzo2,tc
rwii tf)to I amount of
!?lease r:tall tomorrow if practioabio statrnent
nk
anti total arrount tylld by your
11. 3, lovernriant rOcuritiou ,our;thaaed
1 civin42: co.ratelz,
•-•;ectr.osdr.7 zinc() ,Tzsr?
during each woe!:
acticaw with (1) other ro,lefal rcsorve banks, (2) Alien Property Oustodian,
,
!icates,
(3) Federal Land bans, (4) U. S. Treasurer 0.-zolusi've of one-kthy cortif
has purchasod any U. 3. securities =ler
(5) all ot'ner transactions. if
and 5,
repurchase acrox..2ents amounts should Le excluded Iron items 1, 2, 3,
and reported obparate4. in trzuwantions vith U. 3. Treasurer pleas° sbow
3oparately (a) sales to ti.• S. Treasqror including rode;:mtione before maturity
(b) rodomiytions at maturity"exclueivo of temporary one-day certificates,.
lp
IP 'rat 118
•
•
EG131 •
N1
/
4 :
FEDERAL_ RESERVE .
.
BOARD
LEASED WIRE SERVICE
WASH I NGTON
Y43 2-
L'ovember ó, 1923.
172
,
Lartip —
i'or r ir5; yorr not ober 31 telegram, please
touorrow
DrwAleable otterwat ksaing ta4:AVA
U. 3. securitios acid by your
bank eturialcz ovoL wroek wading A3aueudo.y sinoo Jamar7 1 to (1) etur
Fede:cal ruorve bual:A. (2) Alton Proporty Culltodian. (3) Yoderul
4
batiks, (4) U. S. Treasurer including rederdptions befor 1- 14turitTi,
(5) Redemotions by 77. 3. Treasurar at maturity exclusive of t
one -day certificata4. If zn7 of wlounts reported against above items were
included in your wire of October 31 please stato awrogate inoltuled in
eaoh week's figures.
EDDY.
•
Form No. 131.
Office Correspoilkence
FEDERAL RESERVE
BOARD
110
Date
2.
Nov. 7,192S
Subject_
To
Mr
From
Mr. Wyatt
A';', •
I return with thanks the very able opinion of Mr. Weed, Counsel
for the Federal Reserve Bank of Boston, with reference to re-purchase agreemanta.
Mr. Weed very kindly sent me a copy of this opinion, and I have al-
ready read it.
He makes some very strong arguments in favor of the validity
of the re-purchase agreements, and I expect to study, his opinion very carefully. before reporting definitely on the results of gy reconsideration of
this subject.
To paraphrase Mr. Weed, "I think his opinion is well consid-
ered and logical" but at present I differ with his conclusion.
Respectfully,
Walter Wya
General C
Form
o. 131.
Office Correspokence
To
From
__Mr. Wyatt
FEDERAL RESERVE
BOARD
O
Date_
11
Nov. 6,_1923.
Subject:_isetter, from Counsel of Federal.
Reserve Bank of Boston
Ha:, in
-.
4
2--8495
Dear Mr. Wyatt:
I enclose herewith letter:frcra Lir. Weed, Counsel cf the Federal Reserve
'Bank of Boston to Governor Harding on the subject of Re-purchase Agreements.
Kindly return it to me after you have read it.
Sincerely yours,
isc-37
Form No. 131.
Office, Cortespidlience
FEDERAL RESERVE
etc./
T
T q3;v OCLInMittPP
0
November ,..6 .711p7'
1
ate ----f ;•
tir.;,--0,.! ,
gi--SCY:c
,- 9:,1
c
'
'
'
'S
..,-,
--,
Subject:
From.th1r_
1A2 Wk61'
AkL (2,04/
direction of the Governor, the attached communication Old enclosures from the Chairman of the Board of
Directors of the Federal Reserve Bank of San Francisco,
dealing with the subject of the purchase of Government
securities and bankers acceptances by Federal Reserve
Banks from brokers and others, under repurchase agreements,
is referred to the Lam Committee for consideration and
suggestion as to the form of reply which'slioia14_ pacie
--kethereto.
•
"
?
°•77
;
f. iN7
No. 131.
effie Corres
TO
From
Altence
FEDERAL RESERVE
BOARD
D
'Date. Nov.
Subject: Preliminary Report on Confer-
Governor Crissinge
...„,,
Mr. Wyatt, GeneraltCounsel._
li..../.
. ,
ence with Officers of Federal Reserve Bank of New York regarding__ \\_
1
Re-pu.rcha,se _Agreements., ..
,-\
(
Dear Governor Crissinger:
c.
3
7,----37
:
0.06----;.
My time since my return from New York has been\ ly
6.
matters deiaanding immediate attention that I have ben
taken up with
unable heretofore to prepare a written report of the results of my conference there with the officers of the Federal Reserve Bank of New fork
regarding their re-purchase agreements. I have explained to you orally
the results of such conference, but feel that I ought to supplement my
verbal report by a written memorandum. Inasmuch as this subject is to
be discussed at the forthcoming Governors' Conference, however, and there
is no especial need for haste in settling the problem, I should like
very much to defer until after the conference a final report on the
general question whether or not a legal 'Leans may be found whereby the
practice of the Federal reserve banks in taking bankers' acceptances and
Government securities under re-purchase agreements may be permitted to
continue. This report, therefore, is not intended to state my final
preliminary report covering only
views on the subject but is merely ,
the results of my conference in New York.
I was directed to go to New York "for the pUrpose of investigating and determining the .1e,zal status of the re-purchase agreeMents
which the Federal Reserve Bank of New York enters into with bill brokers
when taking acceptances from them." I accordingly proceeded to New York
and discussed this subject at length with Messrs. Case, Harrison, and
Kenzel, Deputy Governors, and Mr. iilason, General Counsel, of the Federal Reserve Bank of New York and also Mr. Solomon of the firm of Eolomon
Bros. & Hutzler.
In „,y memorandum to you under data of August 18, 19230 on
the general subject of re-purchase agreements, I had expressed the
opinion that a transaction whereby securities or acceptances are
sold to a Federal Reserve Bank under an agreement obligatirg the seller to repurchase the saae on or before a certain date is in legal effect merely a loan secured by collateral and not a sale, and that the
Federal reserve bunks have no legal authority to participate in such
a transaction. I also expressed the opinion that, where the agreements
merely permit, but do not obligate, the seller to re-purchase the securities or acceptances, no universal rule can be laid down, but I
believed that even in those cases the transactions would generally
be construed by a court as loans secured by collateral, especially
where the agreements bear various ear-marks of loans, such as provi-
4110ei7,e 2.
ol)
•
0
sion for the payment of interest, a purchase price different from the
market value of the securities or acceptances, and provision
!for the
deposit of additional collateral giving the Federal reserve bank a margin of security.
Such further consideration as I have given this subject sinee
rendering the opinion of August 18th has confirmed my view that the
first class of transactions (those whereby securities or acceptances
are sold to a Federal reserve bank under an agreement oleligl
etinz the
seller to repurchase the same on or before a certain date) are in legal
effect merely loans secured by collateral and not sales. Furthermore,
I have been advised by Counsel for several of the Federal reserve banks
that they concur in this view, though some of the other counsel disagree
with me.
I find that the re-purchase agreement now in use by the
Federal Reserve Bank of New York falls within this class, since it absolutely obligates the so-called seller to re-purchase the securities or acceptances at the same rate at which they were purchased on or before a certain date. The seller, has the option to re-purChase such securities prior
to that date, but this does not alter the fact that he is absolutely
obligated to re-purchase them on or before such date. Furthermore, the
agreement provides for the deposit of additional collateral security for
the performance of the contract and is accompanied by an agreement
covering the deposit of such collateral security which follows very closely the usual form of agreement used by commercial banks in connection
with the deposit of collateral securing direct loans to their customers.
Tvon Mr. Harrison agreed that this made the agreement "look too much
like a loan."
After a preliminary reconsideration of the subject, I am of
the opinion that the transaction covered by the re-purchase agreement
now in use by the Federal Reserve Bank of New York is in effect a loan
rather than a sale.
I have also been requested by the Board, however, to consider
whether or not some legal plan may be adopted whereby Federal reserve
banks may extend acccelmodations to member banks and corporations or
firms dealing in acceptaeces and short-term Treasury certificates by the
purchase of such acceptances and securities; and I_discussed this
subject also with the officers of the Federal Reserve Bank of New York.
I had an idea that the Federal Reserve Bank of New York
could extend all of the aid that was necessary to the acceptance market,
by simply holding themselves ready to purchase outricht all acceptances
ccmplying with the necessary standards which are offered by anybody, and
to sell, to any one desiring to purchase them, any acceptances which they
might happen to have on hand. in other word:" I thotlEht that the Federal
Reserve Bank could itself be the principal dealer in such securities instead of merely financing other persons who were dealing in such securities. I believed that if this could be done it would conform much more
age 34
closely to the intention of Section 14 which authorizes Federal Reserve
Banks to buy and sell acceptances in the open market but does not authorize them to make direct loans against the pledge cf acceptances or collateral security.
Kenzel, however, advised we that this would not be at all
feasible; because it would require the Federal Reserve Bank to serve as a
primary market for bankers' acceptances, and would render it necessary for
the Federal Reserve Bank to enter into direct negotiations with the borrowers on each issue of acceptances with regard to fixing the terms of the
transactions and especially the rate at which such acceptances would be
purchased. I aSked him why they could not fix a certain rate and take
all acceptances offered at that rate, and he said that this could not
be done unless the acceptances bore the en(Jsreement of a bank or carried
with thaw the ,agreement of an acceptance dealer to re-purchase them within
a certain time. He said that in practice the varicus issues of acceptances
are purchased originally by banks or acceptance dealers at varying rates
which are fixed after extensive negotiations with the borrower in each
case and which depend upon the credit standing of the particular borrower
and the accepting bank and the character of the transaction out of which
the particular acceptance arose, as well as the genral condition of
the acceptance market. He said that, as a practical matter, it would
be very undesirable to have a Federal reserve bank negotiating with individual borrowers as to the rate at which it would take their acceptances, and it would also be very undesirable to have the Federal reserve bank purchasing acceptances which do not bear the endorsement of a
sank or banker or carry with them theagreement of a reputable acceptance
dealer to repurchase them. In other woras, he thought that the Federal
Reserve Bank should have the additional security of a bank endorsement
or the t4;rePmOnt0f a reputable dealer to re-purchase the securities in
)
addition to tne name of the accepting bank and the name of the drawer.
I am not 'sure that Mr. Kerezel's objections are absolutely vital .
and conclusive; though I have great respect for his judgment in the matter.
He stated, however, that the Federal Reserve Bank of New York sould be
absolutely umillinE to undertake to act as a primary market for such acceptances, and this seemed to render any further discussion of that suggestion futile.
Vie then turned to a discussion of the question whether or not
some form of re-purchase agreement could be devised which would comply
with the letter of the law as well as the Practical necessities of the
trade. They were unable to dhow me any reason why I should alter my
opinion that agreements whereby the seller is absolutely obligated to
re-purchase acceptances within a specified time are loans rather than
sales, and the discussion narrowed dawn to a consideration of whether or
_al not an optional form of agreement could be devised which would meet the
practical requireeents as well as comply with the letter of the law.
As stated in ay themorandum of August 18, no universal rule
panAgald dovn.as to agreements whereby the seller is not required to
e out is h4ereiy given an option to re
-purchase; and there is
\
) considerable conflict in the authorities as to what construction should
be given such agreeuents. In the last analysis, each agreement must be
considered on its own facts. The general statement contained in ray opinion
of August 18 to the effect that it was believed that in most caaes the optional agreements in use by the Federal reserve banks would be construed
as loans rather than sales, was based upon the fact that they usually
intercontain certain features, such as a provision for the payment of
from the market value of the securities,
est, a fixed sale price different
and agreements for the deposit of additional collateral giving the Fedn
eral reserve bank a margin of security, all of which give the transactio
rather than a sale. It seems probable, therefore, that
the ear-marks of a loan
if an optional form of agreement can be devised which would be divested
be a
of the ear-marks of a loan, it might be conetrued by the courts to
a loan, especially in view of the fact that the courts
sale rather than
of
are generally inclined to resolve any doubt in favor of the validity
rather than against it. I suggested, therefore, that
a transaction
the Federal Reserve Bank of New York might attempt to work out a purely
optional agreement which would be divested of the ear-marks of a loan and
this seemed to meet with favorable consideration.
1
(
Kenzel raised the practical objection that such an agreement
would not give the Federal Reserve hark the additional protection which
it desires in the form of a bank endorsement or the obligation of a
reputable dealer to re-purcease the securities, - in other words, a
name in addition to that of the drawer and the accepting bank.
suggested that this practice' requirement might be met by having the dealers enter into an agreereent wito the Federal Reserve Baek whereby they
would guarantee the payment of any and all acceptances which they might
Such a guaranty is not unusual
sell to the Federal Reserve Bank.
give the Federal Reserve Bank sufficient
in a sale transaction and would
protection against loss thrcugh eon-paythent of the acceptance. .Sr. Kenzel
was of the opinion that this would not be as good protection as the
absolute oblieation of the dealer to re-purchase the securities, but rather
reluctantly agreed that it would be sufficient protection.
aril inclined to the opinion that an agreement might be worked
out along these lines which would be held by the courts to be a sale,transaction rather than a loan, and thus it might be said to eonform to the
letter of the law, which authorizes Federal reserve banks to buy and sell
acceptances on thd open market, but does not authorize them to make
direct loans to acceptance dealers secured by pledges of acceptances as
collateral.
Looking to the substance of this entire transaction, however, I still doubt that it is consistent with the spirit or theory
4,
) We of the law, because, in the last analysis, the effect of such a transaction
is to make an advance or loan to an acceptance dealer to enable him to carry
on his business, and the Federal Reserve Act clearly did not contemplate that
Federal reserve banks would meke advances or loans to anyone other than
member banks. On the other hand, it was argued with great force by Mr.
47,‘ Harrison that the
broad general purpose of Section 14 is to enable Federal
\
'),"( " reserve banks to stabilize and support the market by absor-cing or carrying
excessive offerings of acceptances and by gutting money into the market to
•
•
support the market when the rate :_shows a tendency to go too high, and that
the re-purchase agreements constitute a method of accomplishing that very
result which is fraught with less danger of loss to the Federal reserve
bank than the outright purchase of acceptances. He also called attention
to the fact that Federal reserve banks are not expressly prohibited from
making loans direct to acceptance dealers and the only legal objection
to their doing so is that they are not authorized to do it. In other
words, he argued that it is not a question of the Federal reserve banks
violating or evading a direct prohibition of the Act, but merely a quection of whether or not they are exceeding the powers granted them. He
also argued that the practice has grown up with the consent of the Fed- \I
eral Itieearve Board and that fact would be an argument in favor of its
validity. Mr. Harrison's arguments are entitled to careful consideration,
and I should like to have an opportunity to study the matter very carefully and in the light of the additional information which probably will be
adduced at the forthcoming Governors' Conference before finally reaching
a conclusion on the question whether these transactions could be said to
conform to the purpose of the law if they can be put in a form which will
collIply with the letter of the law.
Another practical objection to the optional agreements is
that they would enable the dealers to speculate at the expense of the Fed,
eral Reserve Banks, by exercisinE their option to re-purchase the acceptances if the price goes up and refraining frcelre-purchasing them if it
goes down. Mr. Kenzel mentiored this objection, which had already occurred
to me, and the only answer to it that I know of is one stated to me by
Mr. Warburg, who said that the acceptance dealers would not dare to play
fast and loose with the Federal reserve barks, because if they did they
would lose the support of the Federal reserve banks which enables them
to do business on favorable terms.
(1
fr
As stated above, this is not intended as a final expression of
my views on the subject of the validity of these re-purchase agree:lents,
but merely as a preliminary report containing the results of uy conference in New York.
I shall cover in a separate report the result of my conference
with reference to the acceptances of the National Park Bank.
Respectfully,
FEDERAL RESERVE BANK
OF SAN FRANCISCO
JOHN PERRIN
CHAIRMAN OF THE BOARD
AND FEDERAL RESERVE AGENT
October 30, 1923.
ry dear Governor:
The opinion of the. Board's Counsel, X-381?,
dated August 16, 1923, has raised very interesting
questions regarding the purchase of Government securities
and bankers acceptances by Federal reserve banks under
so-called repurchase agreements. This Opinion refers
to the present type of transactions, but it has occurred
to me that, in full compliance with the provisions of
the Federal Reserve Act, somewhat similar transactions
could be had, though differing slightly in legal
character. I have, therefore, addressed three queries
to our Counsel and his answers to these point a way in
which such transactions outlined could be legally conducted.
It occurs to me that you may be interested in
the views expressed by our Counsel and I, therefore,
take the liberty of handing you his communication to me
together with an additional copy which it may be convenient for you to have.
Yours very truly,
ofJ
111;d.
The Honorable D. R. Cr
Federal Reserve Board
Washington, D. C.
Inger, Governor,
-•." r 0 , •
.411,
7
ereR,.[117,r,1777
11
Date, October 2e, 1.425
To
erom
er.
erriii, h;iirmj of tee eoard
aria 'ederal .seserve s6ent
Agnew, „;ouneel
subject:
eurchaee of 'eovernment
eecurities and hankers'
Acceptauces by iederal
eeeerve Lanks under iepurceaae Agreeeasts.
This is in response to your receet inquiry regarding
the locality of certaie transactions isvolving the purchase of
Lankors' acceptances by. Federal reserve banks, accompanied by
an arrangement for repurceae. lou ask three queutions which
I answer in their order.
1. "iould it be lawful and, if so, under what
conditions, for a 1ederal reserve bane to purcnase
bankers acceptances from a concern not a member
Lank, c iving to the vendor act option to repurchase
the acceptances provided they were not resold by
the reserve bank to others prior to the time the
option ee uouAt to be exercised"
In my opinion there is no question teat
such transactions ere lawful and clearly within the
powers of the tederel reeerve banks, provided the
purchase is actual; i.e., the reserve Lank pays a
present, adequate consideration, takes physical
possession of the paper, holds it subject to risk
of loss by theft or otherwise, and treats it, in
matters ef eccounting and otherwise, as part of its
own assets. ,0 option granted by the reserve Lank
to the seller to repurchase the paper thus acquired
within a ivon Lsirioe, at a stated aria adequate
price, unaccompnnieu by any penalty or forfeiture
upon the seller for failure to repurchase anu eon:dtioned upon the free risht of the reserve bank to
dispose of tne pepor otherwise than to the seller,
either before or after the option period exeired,
upon terms of the reserve Lank i e own making, would
not only not interfere with the legality of the
transaction, but woulu mark it indelibly as a bona
e lse eale.
e. "If the vendor ahoule not indorse the bills
thus sold to the federal reserve Lank under option
to repuroease, and IL, in lieu ol such indorsement.
the vendor shoule, by separate written instrument,
guarantee that acceptors would pay at maturity, would
the ivii g of such t
luaranty render unlawful a purcsase
,
t•-"
r. Jane _errin
by a reoerve eenk euch as mentioned in the firet
question
if the purchase were elade under the
conditions stated in my answer to your first question.
3. 'If it is lawful for a Federal reserve bank
to purcaso bills in the manner mentioned in my iirst
question, would the legality of such purchases be affected by the fact that the acoeptances were bou8ht et
one rate and a more favorotle rate granted if they
were resold to the original vendor"
if the perchase is bona iide and outright in the first instance and the bills have become
the property of the reserve ink, they may thereafter
be disposed of to euch parsons eed upon such terms as
the reserve bank may consider proper.
I understand that the subject of repurchase abreeeleets
has recently received ooele conliideration at the hands of the
federal ..eseeve Leard and in order that it may not be thoucht my
cohclusions above stated have been hastily reached, I take the
liberty hereinafter oi entering into a fuller discussion of this
subject in the light of your inquiries.
fu'e ZeDL'elAl,
it would seem that 6ection ourteen of the :4-federal
...eserve ect, eeferring to open-marLet operatioes, fLrnishes an
answer to your inquiries. That section provides, in part, as
follows:
Any i'ederal reserve bank may, under rules and
regulations prescribed by the (Icieral eserve iord,
purchase 9116 sell in the open ne:rket, at home or
abroad, elther from or to domestic or foreign banks,
firms, coeporntiono, or indivieuala, cable transfers
and bankers' acceptances ad eills of exchange of the
kinds and maturities by this act made eligible for
rediecount, with or eichout the indorsement of a
member bank.
eubjeot to such rules and regulacions as the .ederal
..eeserve -oard may prescribe, it is clear from the above that
the reserve banks have power to purchase and sell bankers' acceptances in the open market, from or to banks, firms, corporations, or indivieuals, provided such acceptances ere of the
kinds 4nd oaturitios made eligible for roeiacount °'rem member
r. John eorrin
3
banks. This section of the act wee uneoubtedly intended to
give the reeerve bans the very power outlined in ,your first
eu_stion. ihe only element incoeporated in your firet question
not included in the stetute is the grant of an option to repurchese, if before tee option is sought to be exercised, the acceptances have not been negotiated or otherwiee disposed of by
the reserve bank. The power ,iver, to purchase and sell' of
course cerries with IL the power to purcheoe and Co agree to
sell aed the character of the traneection le not changed if the
agreement to sell is eimulteeeoue eith the purcnaee. The option
to repurceakle, being subject to the right of prior sale by the
reserve bane, clearly indicates the free exeecise by the reserve
Lank of dominion over end oweerehip of the property from the date
of purcnaae and removes all question that the right to repercheee,
while in the form of an option, is in fact and intended as an
obliEation on the part of the vendor to eepurchaee.
Your second question adds only one element to those eoetained in the first, to-wit; a guaranty by the veedor that the
acceptors will pay at maturity. it cannot be queetioned that in
open market purchases, conducted under tne authority of section
14 of the ,ederal iieserve act, the purchase may be made with or
eithout ties indorsement of the veaeor and, as the act prescribes,
The genranty
'with Of without the indorsement of a member bank.
sugoeted in your question is merely an enlerged contract of indoreement.
The indorser coeeracts to Le liable only upon
condition of due presentment of the bill or note on
the exact dey of maturity, and due notice to him of
t'id he is abeolutely discharged by
Ito aiohonor.
failure in either particular, althouh he may suffer
no actuel damage ehatever. The 6enrantor's contract
is more rigid, and i.e is bound to pay the amount upon
a presentment made, and notice civen to him of disin the event of
honor, within a reasonable time.
a failure to make presentment end give notice within
such reasonable time, he is not absolutely disoharged
fiTra all liability but only to the extent that he may
have sustained lose or injury by the delay. The .ame
person ma, be guarantor, and also indorser of a note;
and in such case, while failure to dive him due notice
Of demand ane non-payment thl eischar8e him as indoruer, he will still be bound as buarantor."
j)ani,as, ee6. inct. 6th _d.
i take it to be patent that reserve banks, having Leen
given poeer to purchase and sell socuritiee of the character
-r. John i'errin
described, such purceases.may be made upon such collateral conditions as the reaerve tank may see fit to impose, so long as
such conditions eo not bring into question the bona fides of
the purchase or render doubtful its character as such. The condition for guaranty embodied in your eecond question is not such
en one.
Your third question may be paraphrased as follows:
iaving purceased Lille in the open merket in the manner permittee
by the terms of the ederal '.eeerve Act, may a reserve bank sell
such Lille at a prefereetial rate
Unless prohibited by some ruling or regulation of the
federal .eeseive board, it is my opinion that reserve Lanka have
pereer to sell bills purchaaed by them an such terms and at such
rate as may be considered proper. eeation 4 of the Federal ,eeserve 4'ct elves to each reserve bank power "to make contracts'
and "to exercise by its board of directors, or duly authorized
officere or aeents, all poeers specifically granted by the erovisioes of this act and such incidental powers ea shall be
necessary to carry on the business of banking within the limitstioes prescribed .by this act."
The sale of bills purchased or the agreement to do so
is but the making of a contract and one clearly within the power
of the reserve banks. eo, also, the fixing of the price at which
its assets ere sold or are to be sold is certainly a power leicidee;tal to the conauct of 'the business of banking."
It is to te noted, however, that ,toneress has 4ven
the 'eederal deserve osrd elenary power to supervise aed regulate
open market transactions such as those referred to in your questions and that open market purchases ene sales ere "subject to
such restrictions, limitations, and reguletions SO may be imposed"
by that :,tuard (Acs. 13 and 14 eoderal iieserve 4ctj. Therefore,
while clearly legal and within the powers of reserve banks, transactions such as those referred to are within the supervisory power
of the federal .eeserve .board.
.
102i
011
LI 0
TILE' rsDi. AL
,
*.a
1RD.
General Couneel of the :eederal eserve board, under
.
date of August 18, 192, rendered to the ;orrernor of the Board
an opinion regarding the legality of the purchaze by reserve
banks of government securities and bankers' acceptances under
repurchase agreements. Leetter .4.-3b17) Counsel chore dealt with
repurchases as conducted by reserve banks at present and not at
all with transactions of the character outlined in your questions
eir. John eerrin
addressed to me. he points out that the repurchase asreemonts
now in vogue are °I two ceneral Ueda:
:irst, those sherein the vendor is obligated by contract to repurchase thee specific securities sold within a specifiee
time and at a fixed price. The vendor is required to depesit
auditionni eocuritiee with the reserve bank es a marein of safete.
i:ne vendee is given by contract the ridllt to Bell the securities
on the open maret in csee the Z
-called venuor fails to comply
oath the agreement to reperceese. intereet ia chereed on the
traeoactioa an computed as in tha case oi an ordinary loan.
The resJrve banks do no consider or treat the securities as
their own end the purcnese price is, in eifect, an edvance
nteeinet the securities as collaterel. eounsel of the board conclude that these treeoactions do not constitute purchases on
the open market ae authorized 1.;;,' section 14 of the iederal
serv:J ect but loans to others than member banks and that they
are ultra vireo the reserve bank;. .ith this conclusion
eetirely ssree.
made _under ,t40.70filartions
enrcSaoqs
stated are JartIliWiiiire than loans lade upon pledge. They ere*
tf/iiiiiiffraKi
-for which we find no warrint iftthi-p-Owers, exprese
or implied, given to the reaerve banks.
eecond, those agreements wherein a mere option to repurchase is granted the vendor, to be exorcise, if at all,
eithin a specified time, and there is no oLligation resting upon
the veneer te repurchaae and no penalty attachee iOr his :failure
to eo so. Lounsel for the eoard states that in such caees "the
transactions would generally be construed by a court as loans
secueed by collateral." eith this conclusion, i do not entirel
y
agree, provided the transaction ie not accompanied by other Cifcumatrices which woule negative or render fioubtful the prime
incie case of sale shown by the conditions above stated.
if the agreement for optional repurcnase does not contemplate the exercise by the original vendee of uncontrolled
dominion over the property after the period of the option
has
expired, if the transaction ievoivee a cearo upon the arigina
l
vendor equivalent to interest dering the time the vendee
is
carrying the securities, or if the original purcsaee price
is
6reatly less than the market value of the securities, it is
pernaps true that the courts, jealous always to guard thr_
right of
redeelption L-iven in the case oi mortgages end pledges, would
look behind the name ;1.*vee the transaction by the parties
, and,
seekins to find tee true purpose of the agreement,
construe the
transaction to be n loan. -uch seems to to the
trend of the
many decisions upon the subject i heve examined.
!Jut the courts
are equally uilisent to aecortain the true
intent of the pertiee
a
if, from a consideration of the entire acreeme
nt it fairly
er. Joge eerrin
appears thet a present transfer of title was ietended, eith a
more option to the vendor to repossess the prope:tg uden given
coeditioee, the purpose of the agreement will not be perverted
by judicial constreetion.
The hypothetical case stated by you in your questions
end those cases which Counsel for the tideral eserve hoard
ceeiticizes are quite different. Counsel etetes that even in
oi tionel reperceasee most of the agreements entered into by
!
Federal reeerve tanks pr)vide for the ,JAymeht or deduction of
interest.' l'hise would lend some color to the theory of a loan
but it is not involved in the cease ,
7hich we are diecuseing.
Counsel, in discussiee optional reperchases also ssss:
—iurt'eer indication of such intention to effect
a 'loan rather tnen a eale, is sometimes found in tee
payment of a price other than the market value for
the securities or acceptances aed in the erovision
for the deposit of additional collateral.''
The pement of a ,erice other than the mer;bet price may
lend color to the theory oi a loan if the ,drice paid is consieerably beloe the true merLet value but if the difference be only
slight and this is the only auspicious circumstance, the eiscrepenoy woule not be fetal to the conteetion that the traesaction
.mas a sale and could be readil;, accounted for. For instance, it
eieht well be that the seller eieuld be willieg to make eome concession to reserve bank with eelicn he regulerly uealo and wnich
furnishes an waple and convenient marLet for his bills. eo also,
the fact that the reserve bank was willine„ to grant the privilege
of repurcnase at a rte olightl less thin the original sale price
would fully justify some concessioe and be not at all indicative
of other than a sale.
ie deposit of collateral, if considered
and called such, would, however, be strongly ineioative of a
pledge or mortgege. But here again the suppositional case which
•lee are ,iiecussing is iheocent of any such suspicious conditions.
CAene Cl?".1) BY eviiL.L.
Foa
Unless all of the repureeaue agreements made by reserve
banks under option to repurchase are accompanied by provisions for
interest, additional collateral, sale of collateral only in a certain manner after iailure to repurchase, or other conditions
strongly indicative oi loans (and as to that fact i 017n not advised) I do not believe that the general statement made by Counsel
that 'most If not all sale agreements made by Federal reserve beeeei
reserving to the seller the privilege of repurchasing are, properly
ceeetrued, loans and not sales,' is justified by law.
Ink
-;'14 •
,
C1 VIILL
r
errin
.ith all deference to distieguished Gouneel, i respectfully submit thet the cases cited by Counsel hardly support
his general stateme.A.
.A1,pp. 52.
The first °see cited is icLiriI3oxI v. ;.)liver, b/
l'ho following ere the facts in th.q caee:
Y.
D, being indebted to defeildant and having previously
given defendant a chattel x.ortgage on certain farm property
which had not Leen recorded, executed a bill of sale to defendant of the property eovered by the mortgage. D then gave defendant a lease •n the property for one year, the rental being
42.00, the exact amount of legal interest on the indebtedness.
The property remaified in the lessee's posseesio:I. Tha lease
provided that if at any time prior to a date specified, D should
pay defendant a certain so-called erica and interest thereon,
defendant would resell the property to
The value of the
property was largely in excess of the so-called purchase price.
It was held that the bill of sale and lease constituted a mortgage.
In this case we have the following circumstances, not
existing in either the type o cace which Counsel was co!,sidoring or the case which your questions to me present; a pre-existing debt, a lease with the reetal based upon interest on the
pre-existing aett, the alleged vendor retaininf eossession of
,
the property, a repurchaoe price Iixed to inclu.e interest n,d at
a sum greatly lees than the true value of the goods. inc court
could not have done othorwiee than to hold the transaction
mortgat
,e to secure the debt.
2he next CI88 upon which ..;ounsel relies ta support the
contention that all eales made to reserve tanks with an option
to repurei.ase are oans, is
v. .aiker (.!.a.) 12 eo. b72.
C was a creditor of defendants to the extent of a
considerable sum. LAT/fondants sought a further loan from C
which he ;it iirat refused but afterward made, takinp: as security
a purported Lill of sale to certain lumber. The property was
admittedly worth largely in excess of the debt. Thv alleged
vendee never took possession of the property, the subject of the
purported sale, and never exercised dominion over it. It remained in the possession of the defendants, at their expense and
risk. The defendants were authorized to sell the lumber and to
appropriate to their own use any surplus which right remain after
paying %; the amount of his advances and interest.
It was hold that this constituted merely a pledge without delivery of the pledged property. i feel certain that a mere
1
I:1r. John :Perrin
rb
statement oi the facts shows its
:inapplicability to either the
concfete or the hypothetical cas
e under diecuesion.
sparks v. sobinson, 66 srk. 460;
61 e.e. 460 (cited
by ,' ounsel).
,
: intiff received 6.00 of def
Pla
endant and turned over
to him a 45.0° sewing -lachine.
till of sale was executed
reciting 1)U.00 as the consideratio
n rine reeervine to the seller
the right to redeem in one month
on presenting a certain ticket
*Utah provided that the holder mig
ht within thirty days have "th
e
option of purohasing any one art
icle in the buyer's place 'that
is for sale, at a price not to
exceed teriper cent. above its
actual cost, ineludin one sewing
machine, :s.:8.00, if preferred."
Like tickets were issued each
month. :Aaintiff testified she
put
up the machine as collateral
for the loan, agreeing to pay eig
hty
cents a month for the use of the
money. This, defendant denied.
The court held that the transacti
on was a loan at the
ueurioue rate of 10i2 a month and
that it Was void. liow the court
could have come to a different con
clusion under these facts it is
difeicult to see. The case was cle
arly one of pledse or pawn.
The intent of the parties eathre
d from the contract leads inevitably to this conclusion. Ihe
cas
to the close of repsrchese asreem e tears absolutely no similarity
eets e:hich operations under the
facts r!e are discussin //mild
bring into existence.
or, it is
respectfuils eubmitted, does it
beer much resemblance to the repurchaee agreements nolo used by
som
seller lo given the option to rep e reserve banks wherein the
urchaae bankers' acceptances.
The next case cited .by oirnsel, that
of _ercantile .:rust
L;0. v. nastor. 273 ill. 532
; 112
e. 986, did not involve a
repurchase agreement. it was dec
ided by a divisiel court, two
judges disseetisf. The facts,
i respectfully submit, are not at
all analogous with those inv
olved in the purchase and resale of
acceptancee, either es no oonduc
ted by reserve banks or as sugseated in your queries.
21aintiff trust company acc
Company
under a purported asreement of purc epted from the
haae and sale, certain accounts reoeivable asainst which pla
intiff advanced 77p of the
face of the accounts. :Plainti
ff agreed to pay the IZ Company
more if the accounts were finall
y paid, the additional amount to
be paid predicated upon a rate
of interest for the time the aocount ran. The advance of any
amount above 77s was discretionary with plaintiff so long as any
of the accounts in its hands
remained unpaid.
he purported vendor was to eay all
expenses
and attorneys' fees and was to act
as plaintiff's agent in the
collection of the accounts. The
court based its decision upon
the folloeins facts deduced from
tha evidence:
.
OITFM.14111•W
4111,1,•••^,
0.1
"
,
ar. John 4errin
'.4t no time did the accounts become the exclusive
property of the trust company but its interest in them
.ia limited to the 77 per cent. advanced and the proportion Jf the 23 per cent. fixed by . the scale in the
agreement. .. Under the contract in question the elleetone ijomany retained an interest in the accounte to
the extent of 22 per cent, of their value. .. it is
not necessary to go outside of the contract which sufficiently shows that the transaction was intended to
be a mere pledge of accounts for a loan of money at a
usurious rate of interest."
ee have here, then, a purchase price disproportionate
to the true value of the property, a contingent additioAal pa
merit figured in such manner as to return to the purchaser a
usurious rite of int:reut, thu purported vendor eontinuing to
exorcise control over the property and paying the expenses inc4rrad in coliectin6 tee accounts. In m opinion, neither this
nor the companion case of tiome Lond Company v. .;c0ha8ne2, 239
U. e. 566, also cited by Couneel, can be consiearee at all aealo6ous to the state of facts which your questions present. in reletion to perceaeao of acceptances with an option to repurchase,
such as sugiNstod by you, the laeeuaEe oi ,:hief Justice Yarmer
in his dissenting opinion in the 'ercaetiie Trust .;ompany case
would be pertidularly applicable:
;The contract is in the lan6uao of both parties
and by its terms the traesactien was a oalt,. eo language in it justifies holding the parties did not
mean lhat they oaid but meant something Glee. .. It
eoes not seen to me there is anything more in the contrac to indiceta the traeeaction wee a loan than teere
would be in ;1',f) contract of an indorser or guarantor
of a promisso4 flute.
tne laugua6e of the instrument is olein ana unequivocal Jnd there is no
rooei for construction it will be given ite le6,11 effect as written...
liome ,ond -o. v. e:cChesney 239 'J. e. 566 is the only
other ease cited by Counsel in support of the contention that.
all repurceaae agreements made by reserve banks, whether under
option or not, "should be considered loans eecered by deposit of
securities or aeceptances as collateral, instead of eales with
the right to repurceaee reserved to the eeller.' e statement of
the case stows, I believe, the entire diusimilarity between the
facts in the case cited and those which would exist under optional repurcases such as you eug6eat in your questions.
,euounts .eceivalle were transferred to e
a contract
purporting to be one of eaie. The transferee was to make advancee
John Perrin -
to the trenaferrer on acceptable accounts but the traesferrer
wae to and did collect, bearing all expense in connection with
the collection. The eo-called purchase price, viz, the difference between the face of the acoount and the discount wee
not presently paid acid was not even determined until the payment of the account and then only by figuring the time that had
elapsed since the date of the advance. no purchase price was
supposed to bo deferred and was calculated en the excess of the
collection over the advance plus the discount. The contract
also provided that if thu eccounts transferred were not paid at
maturity, or if the debtor became insolvent, the traesferrer
should repurchase such unpaid account and reimburse the transferee for the amount advanced plus =a discount.
These, the court said, were the considerations which
led it to hold the transacAon to be a loan.
f'1,;, in fact, no
other conclusion was possible,
e have here: no present purc'newe price paid or determined, the sub:
feet oi the alleged _ale
not trensferred to the soecalied vendee, tne accounts handled
and collected by the transferrer, the price fleed on. the Lais
of the time for which the money advanced was employee, the aereemeat that the purchase price (loan) ahould be repaid by tbe transferrer with interest if not collected from the debtor at maturitye
eone of these conditions exist in optional repurchase
azereements such as thoue which ou.r questiona suggest.
UFAUII)InG
-ee- 1;ieeni
VAI-LeiTY e
eeeeS
Tne cases draw a very clear distinction between chattel
mortgaos and pledges on the one hand and coneitional sales on
the other. in order for the transeceLon to be a mortgage, the
relation oe debtor aid creditor must exist between the parties
and must continue during the pendency of the transaction. This
condition does not exist in tho type of cases we are diecussine.
,ales with a eimple option to repurchase are conditional sales
or, more exactly, sales with a condition subsequent. Juch transactions, unless acoomeanied by collateral conditions which destroy their character as sales, have Leen repeatedly upheld by
the courts and are clearly within the power of reserve barks.
2he 73ere 6rantine of an option to repurchase is not such a coneition.
lf the transfer is intended merely to secure
an Gelatine indebtedness, it is a mortgaee; but if
the debt be extinguished, or if the money edvanced
is not by way of a loan and the erantor has the
privilege of refundind, if he pleases and tLereby
entitling himself to a reconvoyance, the traesaction
is a cunditionel s8lO."
6
-ye.
41:4.
1.11W, airr
,
Mr. John . °reit - ell
'If the grantor of the preperty io to receive
it back on cendition of paying the debt which he is
in any event bound to pay, the transaction, however
worded, is a mortgage, but if the grantor has an
option whether he will or will not pay the mon4
ana perform the condition, the transectien is celled
a coneitional oale."
eii , iston on ,eles, p. 52U.
'The absence of any obligation on the part of
the transferrer to repay the price, he being given
the option merely of refunding and demanding a retransfer, is a material reason for considering the
transaueion a sale with the right of repurchaoe,
and not a mortgage."
e4
C30
Law, eec. 742.
The decisiono construing eases 0:i' the exact kind under
consideration are relative4 few; thie, no doubt, for the reason
that where the transaction is in form a sale, with a lere option
to repurchase, where the price paid is adequate, ':,ore there is
no exietiee; debt between the parties ane wi'iere it is evident
from the coteries oi dealings and the conduct of the parties that
a present transfer of title waa intended, the traneaction is so
patently a sale that to question it. character as such would be
futile. There are, however, a few cases the facts of wtich are
eo close to those riner .iisuLssion
to zerve ac a deeinite
basis for my conclueions.
.eunnerlin v. seermineham
22
tiso," 402.
.
A delivered to J. a elave, receiving AM) from A at
Ghat time. I) executed e writing agreeing that if by a certain data
e tendered him feCM he would redeliver the slave but that the
agreement shoule be void after a certain date. A sued to have
the agreement declared a mortgage. The court held it to be
:rile, saying:
"There is nothing mentioned of a mortgage or
borrowed meney, in either the bill of sale or the
paper writing. There is no proof that the girl was
e orth more th.0 the money advanced by defendant.
,
'2here is no covenant ..for the reetement of the
money by the defendant in caee of death of the slave,
or any repayment,and there is no evidence that a
loan W8J ever talked of or contempleted between the
r.John terrin- T12.
parties. Ji slave was 1,
21ediate1y deliver..
ilia Lill must be dismised.s'
To tha same effect see .
ess vs. Green 10 .:.eigh tVa., 251;
34 ,m. lie°. 731.
Palmer v. ,loward. 72 L111. 295.
iurniture was sold by n to B under an agreement i-hereby A reserved title to tha goods until the purchaoe pride was
paid. The vendee Was described as the 'berro-wer' of the goods
atid it W38 provided that he should keep it insured, not remove
it from a specifiA place and should promptly surrender the
.)roperty in good order upon failure to keep his part of the !reemont. The "borrover* paid one installment only, mortglged the
property to the defendant and left or parts unknown. The court,
coflutruing the agreement a sale and not a mortgage
"tiere it is clear from the whole transaction
that for all practical purposes the ownership of
property was intended to be transferred and that
the seller only intended to reserve a security for
the price, any characterization of the trtinsaction
by the parties or any mere denial oi its legal effc,et will not be reorded. The question, it is true,
is one of intention; but the intention must be collected from the whole transaction 1.1c1 not from any
particular feature of
ee also in re Aelson, 191 P.
233.
,eardslei v. .re rdeley. 138 U...3. 262; 11
,
In thi: case one A executed to his brother an instru.J
ment in . riting rending, 'I hold of the stock of the X railroad
company 1350 shares which is sold to .6 And which, though standing in my name, belongs to him subject to the paiment of
'.1:100.
Juotice brewer, in holding thiu to be a contract of
sale with title pessin6, said:
'4hat is th significance and import of this
inGtrument
... is not to Le determined by any
separate clause but by the instrument as a whole .,.
'The at wer to this quetion is not to be found in
i
any name ,
Nhich the partAs may have 6ivan to the
instrument an not alone in any particular orovicdons
ell% Jo
2errin
lz
it contains disconnected from all others, but in the
ruling intention of the parties gathered from all the
language they have used. it is the legal effect of
the whole which is to be souLht for. .he form of the
instrument is of little account.' ... ,e have little
doubt as to the significnece of this contract and hold
thet its effect was to make the appellee one third
owner with the appellant of the stock of the railroad
compiny."
Yost T.
irteational
:eani.
66 eans. 605i M.; eac.U9
in tele case A executed to b his warranty deed covering certain property and on the Eolme day
gave A a bend to reconvey the property
on the payment to him by e of a certain
purcnaee price within a certain time thereafter. A crealtor of
A obtained a judgment against him and levied executi
on. Later
.6 agreed to sell the property to 0, and A ie. writing
waived his
right to repurchase under the agreement with b. ?lie creditor
of . claimed the property was subject to nie execution aria that
the transaction botnee A and B was a mortgage. This content
ion
B resisted. The court, holding the transaction a sale, said:
"Ad examleotion of the record shows both plaintiff in ereor aria A teseifiea the transaction was a
sale of the property an not a mortgage. it is a
settled rule of law that the intent of the parties .
must govern and that the righte of the parties must
be mutual. in the case at bar, ii it is in the power
ol
or his judgment creditor to insist upon the transaction as a mortgage, the plaintiff in error must have
the corresponding right to compel payment of au existing indebtedness and the foreclosure of the aeed as
a mortgage to secure such indebtedness. in other
words, if no debt exists after such transaction there
can be no alortgago. ..."
Aicieman v. i,;antrell. 9 Yerg. ;Tenn.) l7Zi 30 em.iieC.Z96.
In that case A gave B a bill of sale to a slave and E.
in the same writing agreed that if A should repay tee purchase
:rice within a elven time, the bill of sale should be void and
title revert to . WI:: court, holding that the treneaceien constituted a ,:reeent salo with an agreement to re-sell, said:
The courts of chanoary have .. said that in
all °sees ehere a pre-exiatin6 debt, or a loan :nada
at the time of purchase was the consideration of the
deed of conveyance, they would consider the debt 88
,a.
. John .tlerrin - 1 14
thing corktracted for. .. :6ut this rule
construction
wau only aplied to ceeies -ehare the estate vas really
intended as secuvi* for the paymt of money and not
to those where there was no precedent debt and no loa,
of money, but an honest design to purchase the property with a condition to repurchase; they were left as
at common law. .. .rom these considerations it is eeon
that to make a deed of conveyance a mortgage upon its
face, it must show that the consideration which suggests it was either a debt due or money lent at the
time of its execution, or it mut contain an express
covenant for the repayment thereof; this bill of sule
and its coneition howe neither of these things.
Therefore, it is not a mortgage upon its face• .. e
are of the opinion that it was a sale upon condition
of repurchase.'
Lrennan v. Grouch, 10 4. Y 2t9p. 41J
_.
126 i.Y. 765; 26
,G2U.
affirmed in
.21aintiff who held a paid-up life insurence policy,
the surrender value of which was :16A, applied to defondwIt
for a loan of ,15
.00 which was refused. Two dys later he
entered into a.ci agreement eith defendants in which he 'sold and
assi6ned the policy" and the defendants agreed to resell the
same to him on or before a given date upon payment of :
1600.
It wa:e also agreed that if plaintiff did not repurchase the
property the defendants would pay him an additional tlUO in full
of all demands.
upon a snit to have a reassignment decreed after the
expiration of the option perioe, he court held that while the
purchase price was lees than the surrender value, the intent was
clear to effect a sale with a mere option to repurchase, and
refused to decree a reassignment.
:Lowey v. ,Icelurrai E7 Zo. 11;
.1
72
sc.
51.
ilaiztifi o'Nned a lot of land subject to two mortgages.
borrowed from aefeeuant sufficient to take up the second mort_
gage, ivin his notes therefor which, at the time of the occurrences hereafter related were not fully paid. A.aintiff, being
unable to liquid to the first mortgage, the mortgageeforeclosed.
it was agreed between plaintiff and defendant that defendant
uhould bid in the property at :tale and if plaintiff should repay
the amound bid, togetner with the other indebtedness remaining
between them within one year, def,Jndent would reconvey; oti;erwise the property should remain his. This wee done but before the
exoiration of the year defendant sold the property to a tilird
he
lir. John .eerrin -
15
-ear
party who took with notice of the agreemeat. exactly one ,
amount duel defrom the date of sale, plaintiff tendered the
fendant and demande a deed, which was refused. This actioe
was to annul the deed elven by the defendant or to obtain a
money judgment against defendant for the value of the premises
less the debt. The trial court gave an instrudted verdict for
defeedant. The court said:
"ee do no tell see Lee the transaction Leteeen
iaaaithee parties can be rejarded as a mortgage er a c
applicable to
mortgage or how the law oi mortgages is
it. it may be presumed that contracta of this Idea
are narrowly watched end courts lean atrongly in
hancelior Lent
favor of the ri6ht of redemption.
says that the distinction between a mortgage and a bill.
of sale is that if the relation of debtor and creditor•
remains and a debt still subsists, it is a mort6aje;
but if the debt is extinguished by the agreement of
the ,aerties or the moaey advanced was not by way of
loan, and the grantor has the privilege of refunding
if he pieeaes by . a given time, and thereby entitling
himself to a reconveyance, it ia a conditional sale.
4 'aent's. Com. 145. .. rho contrect ur promise made
by (the defendant) even if binding in law, conesituted
the transaction a conditional sale tied ac4 a mortgage."
It will eerve no purpose to cite other cases at leagth.
e•
are many which hold that transfers of preperty, under cirinere
cumstances meet) indicative of loans than those which we ars discussing, are eales e:re it api,eare the title passed, the consideration was adequete, end the alleged buyer aosumed dominion
over the propeety transferred. The following caaele illustrate
the ruie.
iioberts v. eorton, 66 onn. e; 33 Atl. 57.2,
2hipps v. eiunson, 50 Conn. 267,
:aertiae v. edlton, 152 ill. 656; 3&e.e.. 941,
eemao v. 'aardia, 111 111. 634,
4a1dia6 V. drown, 36 Ore. 160; 59 /sc. 185,
6
I/allot:el v. Johnstone, 12e . .e. Ck,; 9 Zup.Ct. 43,
.
;
Alexander, 7 ',:ranch (U.; .) ab.
i;onways extra. v.
42 Cal. 75,
?age v. Vilhao,
lorris v. Angle, 42 Cal. 236,
Hart ecod ';(). v. Bonaly, 66 Cal.Dec. 439, 441;
(148/23).
,CLU;.;1011
The questions whieh you have propounded and which are
answered herein induce the conclaoion liet the coetemplated
transactions will be considered and treated by both parties as
r. John Perrin - x16
sales with preeent title passing.; that, during the eeried :nen
the option to repurchase
Le exercised, the property will be
treated as that of the. reserve banks, subject only to the continent option. L3uch transactions, in my opinion, ere clearly
intra vire the reserve banks.
It may be said that while it is true that no relation
of debtor ane creditor exists between the till brokers and the
reserve banks and while no penalty attaches for failure of the
eeller to exercise the option to repurchaoe, the fact remains
that all of the transactions, taken together, repreoent lerel4i a
scheme to create for acceptances 0 ready market which would not
otherwise exist ned to give to bill 'brokers an outlet for their
paper which they would not otherwise have. Adnitting, for the
purpose of argument, that thie is the effect of open market
purci,aees on a laree scale by reserve banks, auch fact does eot
affect the nature of any transaction or series of transactions.
Tee provisione o. ection 14 of the Pederel eserve :tot e.hereby
the reserve banks are 6iven power to purchase and sell securities
of the Lind mentioned from or to ... firma, corporatioeo, or
iedivieuels - cannot properl,v be reatricted to purclase§irom or
sales to particular firms, corporationo, or indivieuele. It is
the nature of the transaction or series of transactions and not
their ultioate °fleet which Alin give them their legal character
and determine the power of the reserve Lalles to engage in them.
in
her words, a transaction or aeries of treaoactions otnerwise within the admitted o' era of the reserve banks is not
rendered ultra vireo because, in the lerrer aspect tney result
in the creation or stimulation of a co enercial paper elarhet for
firms or corporations not -eembers of the reserve system.
e.espeotfully submitted,
,13‘ .Z2 O. ATITA
eounsel.
John Perrin,
CiAtirman of the i:oard
and ioederal lieoerve Agent,
edertil .aeserve iAank. of 6an Prancisoo,
:an Francisco, eilfornia.
I
HERRICK, SMITH, DONALD El FAR LEY
ROBERT F- HER RICK
GUY CUNNINGHAM
JEREMIAH SMITH. JR.
MALCOLM
DONALD
TELEPHONE
J. W. FAR LEY
ARTHUR
H . WEED
MAIN
84 STATE STREET
HENRY W. DUNN
7380
EDWARD A.TAFT
PHILLIPS KETCHUM
GEORGE C CUTLER. JR.
October 26, 1923.
BOSTON
EUGENE T. CONNOLLY
HAROLD L CLARK
OSCAR W. HAUSSERMANN
W. SIDNEY FELTON
BARTLETT
7/4--
HARWOOD
E. P. CU MM IN
HENRY L F. KREGER
BENNETT
SANDERSON
MARCUS MORTON. JR.
GEORGE R.BLODGETT
-e- 441
1 -'1.4‘,, 4
,
6
/
,0412.4
Hon. W. P. G. Harding, Governor
Federal Reserve Bank of Boston
30 Pearl Street
Boston, Massachusetts
My dear Governor Harding:
Repurchase Agreements
Question has been raised by Mr. Wyatt, general counsel
of the Federal Reserve Board as to the propriety of the practice
engaged in by the Federal Reserve Banks of purchasing government
securities and bankers' acceptances from member and non-member
banks and stock, bond and acceptance brokers under agreements
providing that the sellers of these securities or acceptances will
repurchase them from the Federal Reserve Bank within a specified
period of time.
Mr. Wyatt comes to the conclusion that these
transactions are illegal.
You have referred to me Mr. Wyatt's opinion and have
requested my views on the subject.
with care.
I have examined his opinion
I think his opinion is well considered and logical,
and I believe his statement of the principles of law involved to
be generally sound.
Hence, it is with hesitation that I venture
to suggest a different view from that expressed by Mr. Wyatt.
Mr.Wyatt's general conclusion may be best summarized
by quoting the concluding sentences of his opinion which read as
follows:
,
• f',•.
'" (/'
1/
1
'1 '
HERRICK.S M ITH, DONALD a FARLEY
TO Hon. W.P.G.H.
F.,0 2
October 26, 1923.
"The practice which has grown up in the Federal reserve
banks of buying bonds and bankers' acceptances under
so-called "repurchase agreements" amounts to nothing
more nor less than the making of direct loans on the
security of such bonds or acceptances, and the making
of such loans to parties other than member banks is
manifestly inconsistent with the purposes of the Act
in that it enables non-member banks and stock, bond
and acceptance brokers to tap the resources of the
Federal reserve banks directly and without the intervention of a member bank.
"As stated above, I am of the opinion that these
transactions are clearly ultra vires as to Federal
reserve banks and it is respectfully recommended that
the Board so rule."
In arriving at his final conclusion as quoted above Mr.
Wyatt advances arguments which perhaps may be summarized
and restated as follows:
(a) That there are certain general principles
of
law under which a court will look to the subst
ance of
a transaction and will not be controlled by the form
which an agreement may happen to have, and the
actua
intent of the parties will be the controlling facto l
r.
(b) That in the present case even thoug
h an
actual purchase by a Federal Reserve Bank
be permitted
under section 14 and even though a resal
e or
to resell be permitted under that and other a contract
sections of
the act, nevertheless looking at the
substance rather
than the form of the transaction it
constitutes a loan
not authorized under the act.
(c) That even the form of th
contract in some
cases indicates an intent to effect
a loan rather than
a sale. That in particular certain
contained in some of the contracts specific features
such as (1) provision for additional collateral,
(2) provision for
sale at public auction or private
sale in case of
default, and (3) charging of inter
est, are only consistent with the theory of a loan.
(The contracts used by
the Federal Reserve Bank of Boston
do not contain these
specific features.)
HERRICK.SMITH.DONALD 8.. FARLEY
Hon. W.P.G.H.
TO
0
FOLI
3
October 26, 1923.
(d) That even though the contract for repurchase
gives the seller only an option to repurchase and places
no obligation on him to do so, nevertheless there is
ample authority to construe the transaction as bein:z in
the nature of a loan.
(e) That the history of the past six years shows
that the "repurchase agreement" was developed for the
purpose either of aiding member banks to escape taxes or
of aiding non-member banks to secure loans to which they
were not legitimately entitled.
In short, it seems to me that Mr. Wyatt approaches this
whole question from the point of view that these transactions were
contrary to the spirit and intent of the Federal Act and fundamentally
wrong.
He seems to feel that the "repurchase agreement" was con-
ceived for the sole purpose of accomplishing by indirection that which
could not be legitimately accomplished by open and direct methods.
If
Mr. Wyatt's interpretation of the purpose and intent of this "repurchase
agreement" be correct, it would seem to follow as a matter of course
that these transactions should be viewed not from the point of view
of form but rather of substance, and hence being illegal loans, the
practice should cease.
In view of your long and intimate experience with the
development of the Federal Reserve system it is hardly for me to
place an interpretation on the fundamental intention and purpose which
guided the Federal Reserve Board in authorizing as a matter of
policy the repurchase agreement.
However, from my own personal
-
point of view and from my own personal knowledge of local conditions
in Boston at the time the repurchase agreement came into vogue, I
should say that the repurchase agreement, at least so far as bankers'
HERRICK.SMITH.DONALD
TO
a FARLEY
Han. W.P.G.H.
FOLIO
4
October 26, 1923
acceptances are concerned, was designed for an entirely different
purpose than Mr. Wyatt states.
As I recall it, when bankers'
a ceptances were first being developed as a new form of financial
aper, every effort was made to create and stabilize an open market
or the purchase and sale of these acceptances in this country.
The
Boston Reserve Bank legitimately gave its influence in furthering
this object.
It was quite natural for bankers and brokers who were
endeavoring to establish a market for bankers' acceptances to look
to the Reserve Bank as one of the larger purchasers.
It was like-
wise natural for the Reserve Bank to exercise its power of purchase
within reasonable limits for the purpose of assisting in establishing
such a market.
As I understood it the repurchase agreement performed
a very legitimate function in that it tended on the one hand to keep
the resources of the Reserve Bank liquid, and on the other hand it
was a means of forcing the brokers to greater energy in the matter
of disposing of these acceptances to the public generally and thus
establishing a broader market.
I personally do not recall a single
case where there was the slightest intimation that the repurchase
agreement was used as an indirect means of accommodating a broker with
a loan.
It is my recollection that the repurchase agreement was always
used as a means of furthering the object of establishing a market.
So far as I know the Federal Reserve Bank of Boston has never
considered securities purchased under repurchase agreements as
-
H ERRIC K. S M ITH. DONALD
TO-
Han
FOLIO
a
FARLEY
VI.P.G.
5
October 26, 1923.
an ything other than the absolute property of the bank.
If my own interpretation of the object and intent of the
epurchase agreement be correct, you then would have a situation
hich is entirely different from that outlined by Mr. Wyatt.
You
ould have a situation where the Federal Reserve Bank was endeavoring
to accomplish a beneficial result quite within the scope and purpose of
the Federal Reserve Act, and the question would be as to whether the
repurchase agreement, as one of the means of accomplishing this
result, must be abandoned simply because it was open to the possible
construction of constituting a loan'
I should say not.
In my own opinion if a court once found that the repurchase
agreement was used with the intent and for the purpose of accomplishing
a beneficial result within the scope of the Federal Reserve Act, the
court would construe such an agreement to be legal if possible.
I would
assume that the court under such circumstances would place the burden
of proof on the party attacking the validity of the agreement.
I believe
that it is a well recognized principle of law that when a contract,
document or transaction is before the court and it is possible to
construe the contract, document or transaction in two ways, under one
of which it will be valid and under the other, invalid or illegal,
then in the absence of evidence it will be presumed that the interpretation which makes the contract, document or transaction legal
will be the one used.
This is especially so in connection with trans-
actions by corporations which may be (according to the respective
•
S
HERRICK.SMITH.DONALD
a FARLEY
To Hon. T.P..H.
FOLIO
6
October 26, 1223.
interpretations placed upon them) either (1) intra vires, or (2) ultra
vire s.
In such cases the court presumes them to be intra vires.
See
the following:Ohio etc. R.R. v. McCarthy,
96 U.S. 258.
Cincinnati Etc. R.R. Co. v.
Rankin,
241 U.S. 319 (1916).
Insurance Co. v. Association,
54 Ala. 73
Fites v. Marsh,
171 Calif. 487 (1915).
Printup v. Johnson,
19 Ga. 73 (1855).
Russell v. Union,
73 Ill. 337 (1874).
Association No. 2 v. Wall,
153 Ind. 554 (1899).
In re Brown,
92 Iowa 379 (1894).
Lyons v. Jordan,
117 Me. 117 (1918).
University v. Society,
12 Mich. 138.
Telegraph Co. v. Showns,
112 Miss. 411 (1916).
Downey v. Mt.Washington R.R.,
40 N. H. 230.
Curtis v. Gokey,
68 N. Y. 300 (1877).
In re Rochester,
110 N. Y. 119.
Ellerman v. Chicago Jct. Co.,.
49 N. J. Eq. 217 (1822)
Mallett v. Simpson,
94 N.C. 37.
Howard v. Boovman,
17 Wisc. 459 (1863).
So also in England,
Railroad etc. v. Stewart,
3 Masq. (H. of L.) 382.
Shrewsbury etc. R.R. v. R.R.Co., 6 H.L.C. 113, 125.
See furthr, Fletcher:Corporations,
Cook: Corporations,
22 Corpus June.
Woods: Railway Law,
p. 4694
P.
p. 147.
p. 523.
Curtis v. Gokey, 68 N. Y. 300 (1877):
"The law will not presume an agreement void as illegal
or against public policy when it is capable of a construction which would make it consistent with the laws
and valid."
The power of a Reserve Bank to purchase government securities
or bankers' acceptances under section 14 is not denied.
the Reserve Bank to sell these securities is not denied.
The power of
The power
of the Reserve Bank to enter into a contract to resell is not denied.
Consequently, I believe that the repurchase agreement as a matter of
HERRICK.SMITH,DONALD 8. FARLEY
To Hon • W.P.G.H.
FOLIO
7
October 26, 1923.
presumption should be considered legal and is only to be construed as
illegal or ultra vires in case it forms part of a transaction which is
fu damentally wrong.
I believe that it will be apparent from a study of the
Congressional debates, the Committee reports and miscellaneous
blications regarding the Federal Reserve Act that section 14
as included in the Act for the purpose of accomplishing other objects
than the mere investment of surplus funds.
I believe the chief
purposes for which this section was inserted may be summarized as
follows:
1. To allow Federal Reserve Banks to earn expenses
and pay reasonable returns to member banks during the
period between times of emergency, since in these quiescent
periods it may be that the re-discount powers of the bank
(under section 13) will not be employed by member banks and
consequently the Reserve Bank might be without opportunity
to employ its surplus funds.
Federal Reserve Bulletin, Vol. II, p. 15.
Senate Report, No. 133, 63d Cong., Part 2.
Reed, Federal Reserve Policy, p. 185.
2. To give the Federal Reserve Bank power to control
in part at least, money rates during periods when there is
little re-discount, and also, to prevent or control the
shipment of gold bullion in and out of the country in
settlement of international balances.
As above; also,
Congressional Record, Vol. 51, pp. 428, 524 and
1192.
3. Totad in establishing the dollar as a medium of
foreign exchange.
As above; also,
Congressional Record, Vol. 50, p. 5058.
4. To aid the development of bankers' acceptances and
bills of exchange as a means for financing both domestic
and foreign credit transactions.
As above; also,
Congressional Record, Vol. 51, p. 282.
HERRICK.SMITH,DONALD a FA R L EY
FOLIO
a
October 26, 1923.
The relative importance of section 14 and the powers
nferred by it with reference to the other purposes and aims of
he whole Reserve Act are well brought out by the report to the
enate, 63d Congress, 2d Session, Report No. 133, Part 2, which
thus describes this section:
"OPEN-MARKET CONDITIONS.
One of the most important features of this bill is the
establishment of what is called an open market for bills of
exchange and bankers' acceptances such as has long prevailed
in Europe, but which has not existed to any great extent in
the United States. In Europe the various banks and private
bankers carry on a very large scale commercial bills of exchange and acceptances based on actual commercial transactions
of short maturities and which are regarded as self-liquidating.
Such bills have behind them actual merchandise for which a
purchaser has been found, and these bills are held in their
portfolios as almost the exact equivalent of cash, for the
reason that the security of such bills is regarded as substantially perfect, their uniform and certain payment constant,
and therefore there is an 'open market' for such bills maintained by the great public banks, such as the Bank of France,
Reichsbank, the Bank of Belgium, the Bank of Netherlands, the
Bank of England, etc., at a very low rate of interest.
It is now proposed that a constant market at a fairly
uniform rate of interest be established inthis country by
establishing the Federal reserve bank with a large carital
and large reserves and with the express power to discount for
member banks commercial bills and acceptances of the qualified
liquid class, and also to buy and sell in the open market such
bills and bankers' acceptances as have been found merchantable
and liquid by experience of European banking system. It is
anticipated that the effect of this method will be to encourage
banking houses to buy commercial bills of the qualified class,
and in this way that we may greatly enlarge the market for
the bills of manufacturers, merchants, and businass men who
are handling the actual commerce of the country. (Secs. 14
and 15, pp. 40-44.)"
So far as the alleged purpose of member banks to escape
the Federal stamp taxes by selling securities to the Reserve Bank
HERRICK.SMITH.DONALD
a FA R L EY
To _Ron. W.P.G.H.
Fou, 9
October 26, 1923.
under a repurchase agreement rather than to execute a fifteen
-day
note secured by collateral is concerned I believe that such a purpose
was incidental and not fundamental if it existed.
After all, the
Federal Reserve Act authorizes a loan to a member bank.
Consequently,
even though there was an evasion in some cases where a member bank
sold under a repurchase agreement, nevertheless the fundamental
principles of the Federal Reserve Act were not violated because
the
Act contemplated a loan to a member bank.
Naturally there can be
no accusation that the repurchase agreement was utilized for the
purpose of evading taxes so far as non-members are concern
ed because
the non-members had no authority to use the fifteen-day
note in any
event.
My conclusion, therefore, is that the utilization of the
repurchase agreement does not technically, so far as the form
is
concerned, violate the provisions of the Federal Reserve Act; that
inasmuch as the repurchase agreement was conceived for a legitimate
purpose and inasmuch as there is a legal presumption in favor of
legality, the repurchase agreement should not be abandoned on the
ground that it is illegal.
Very truly yours,
AHW/EFM
,
October 17, 1023.
Dear Governor Wellborn:
I was qlad to receive your letter of the 15the4iating that
Mr. Lane had agreed to withdraw his request for accommedation in
the line of purchastnf Treasury certificates under repurchase
aereement at the present time.
rifiiip poisTia have received by this tiate telegram from the
Clerk of the Congressional Comeiseion which is investigating the
reasons qihy more state banks do not join the Federal Reserve
ystem. Mr. Meadlen, wto is the Cheirmen of the House 7!ankine and
Currency Committee and also of this Comeiseion, told ma that he
expected to have telegrams seat to the 'Federal reserve banks which
they are going to visit asking for the 11A:1 of rooes in the banks
for their bearings. I have looked over their itinerary pretty
cerefully an4 it seems to me that it is so etrenuous that the are
har4ly likely to carry it out. They are schedelel to roach Atlanta
on the 15th, when you and Vr. 14cCord will prohebly still be in
Washington, ant. are ucheluled to stay there until thu 17th. You can
undoubtedly, I should think, get back there in tiee to see them by.
at least the leth, supposing they keop to their ecbe -bile. It seams
to me very 3ikely, however, that they will Ile unable to keel' to their
scheiele enl will reach Atlanta v. day or two later than the 15th.
It is rather unfortunate that they decided to taifa this trip
aoverincr V,e time when the Governors and Reserve egenta eill he in
Washington but it 414 not seem to U2 or to Mr. McFadden that it .
eas
worth while to postpone our Joint Conference and the Commission elle
see at their home leinks nearly all the Governors an1 Reserve Agente
they particularly went to see. Dallas appears to he the only place
where it will be imponsible to see either the Governor or Agent if
both cols to Washineton and it may be thought advisable, it seems to
me, for Governor McTinney to stay there, especially as he has been in
Washington on committee eork very recently.
Yours vary truly,
Vice Governor:
Mr. M. B. Wellborn, Governor,
Federal Reserve Bank,
Atlanta, Georgia.
(Ø0
•
•
•
FEDERAI, RESERVE BANK
OF _AT
i'Th
OFFICE OF
October 15th, 1923.
E
Gov- nwon_
Hon. Edmund Platt,
Vice Governor,
Federal Reserve Board,
Washington, D.C.
Dear Governor Platt:
-
In connection with your leftter of October 10th,
which was handed to MB by Yr. James on the train to Nevr Orleans last Thursday, I wish to advise that I saw Mr. Edward
Ur. Lane, President of the Atlantic National Bank, Jacksonville,
Florida, at New Orleans, and had a talk with him regarding the
correspondence which has taken place between your Board, this
Bank, and himself over the question of our purchasing from our
members Treasury Certificates under what is known as a Repurchase Agreement.
After hearing my side of the question, Mr. Lane very
graciously consented to withdraw his request for such accommodation at this time.
He says that he will, however, in all probability, take the natter up again at the next meeting of the Advisory Council, which action on his part will then be entirely
agreeable to me.
Very truly yours,
Governor.
11517.w.
October 10, 19?3.
Dear Governor Wellborn:
Your letter of October 8th, with relation to the geest
ion of
taking Treasury eertificates_14nder,repurchase agreements
from -your
mem
—Fiiii, is at hand. I talked the matter over somew
bat informally
with the Board this mornirg and rea4 a part of your
letter. It in
the Btx.ird's belief that your bank should exercise its
own discretion
and I wrote you merely to call attention to
the fact that the Board
itself had put out no new ruling or regulation
or decision that would
call for any change of policy on your part.
I rtther inferred from
Mr. Lane's letter that you had been taking Treas
ury certificates on
repurchase agreements but had discontinued the
practice somewhat
recently because of the legal questions ,
ldeh were discussed before the
Federal Advisory Council.
It is my own opinion, and I think the Board
generally is inclined
to the same view, that the Federal Reserve
Bank of New York is performing a valuable service not only to the Treasury
but in the line of
stabilizing interest rates by taking Treas
ury certificates and ,
iceentances
from dealev as --ell as from meMber banks
on repurchase agreements. In
the case of member banks, of course, they
can put in their fifteen-lay
notes and rediscount with Treasury certificat
es as collateral, in 9qhich
0:e.se the notes could be used, I presu
me, as collateral for issues of
Federal Reserve notes. I presume that
has been done frequently ani is
still being lone to noq extent in the
Sixth Disteiet and I don't 30 0
.
that from the standpoint of mmber banks
a repurchase agreement has much
advantaee over this, unless they are reall
y aentrous of avoiding any
showing of borrceved money in their state
ments as your letter indicates.
I um glad you are going to see Mr. Lane
at New Orleans and discuss
the matter elth him.
Inasmuch as this letter would bet be
likely to reach you until after
you had left iblanta, I am going to
give it to Mr. James to give to
you.
Yours very truly,
Mr. V. B. Wellborn, Governor,
Federal Reserve Bank,
Atlanta, Georgia.
Vice Governor.
#;.•
FEDERAL RESERVE BANK
wsw."
PIL4%Th
,,AN
OFFICE OF
October 8th, 1923.
Grovmnrropc
r.r. Edmund Platt,
Vice Governor,
Federal Reserve Board,
Washington, D.C.
Dear Governor Platt:-
Replying to your letter of October 4th, permit no
to give you our reasons for not desiring to purchase from our
member banks Treasury Certificates under a repurchase agreement.
It is true that this is being done in Neu York City,
but, as I understand it, it is done solely in order to aid the
,
j United States Treasury Department in floating its temporary loans.
4 To some extent, it seems as though the same policy might apply in
S
t our District; but we feel that, if we followed such a procedure
'\with our member banks, an undue expansion of loans might follow.
Have you considered the fact that, in handling these
Certificates under a repurchase agreement, we could not put them
up with our Federal Reserve Agent to take down Federal Reserve
Hetes, which would result in the curtailment of our lending power ?
Another phase to be considered is that such an action
r on our part might encourage our member banks to purchase these
Certificates of Indebtedness in order to swell their deposits, and
relieve themselves of showing any borrowed money in their statements.
Obtaining a terlorary deposit through the Treasury Department by
means of the purchase of such Certificates might seem very attractive
to our members, and the result would be - as I have stated - that
there would, at times, be too heavy a load to carry upon us.
You observe, further, that, in taking the position we
do take on this question, we do not lay ourselves open to a charge
of discrimination, such as might conceivably be brought against New
York for granting this privilege to dealers and denying it to member
It is obvious that such action in handling the situation as
banks.
we propose could not be misconstrued as favoring dealers, because
there is no such class in this section to benefit.
11
/D/iL
0 Yr. Edmund Platt
RESERVE BANK OF _ATLAill
•
•
I expect to see Mr. E.U. Lane the latter part of this
week, on the occasion of the opening of our new branch bank
building in New Orleans.
I will talk the matter over with
him thoroughly, and I believe that I can induce him to withI think that the principal motive which
draw his request.
actuated him in opening the question was a belief that we
should possess whatever privileges New York possesses.
I
am of the opinion, hauever, that we should be careful to take
into consideration the fact that New York is the financial
center of the country, and that the Treasury Department finds
it necessary to have that Bank aid than in the market in floating their temporary loans from time to time.
Very truly yours,
M.B. Wellborn,
Governor.
VERA.
/1:
-333
1 3 2
3
October 4, 1923.
Dear Governor Wellborn:
I received this morning a lettertfrom Rdward V. Lane
of
President of the Atlantic National...Bark... Jackeonville,
of wbicIitWèencloieiriii a c
7—-Opy. On taking vp the matter
with the Board t},13 morning it Was thought Ilest that I
should write to you instead of answering Ws-. Lan't-S letter
directly and send him a copy of my letter to you.
I have no inforftiation as to just what trannactions
Lane' letter refers hut generally speaking I see no
reason why the Federal Reserve Bank of the Sixth Dietrict
should decline to purchase from its meuil,or banks Treasury
certificates on the same terms as they lire being purchased
by the Federal Reserve Bank of New York from its member
banks. I presume that Mr. Lana's letter refers. to the matter
of purch.asinF Treasury certificates on what are known as
repurchase aereemente. Certain legal phases of these aeree=ants have been called into question but the Board has taken
no action in the ratter and has issued no instructions to
the -Federal reserve banks. Plythermore repurchase agreements
with member banks would seem to be qarranted anyway, the only
question in such cases being whether they should be included
in the I'ederal reserve "hank statements as loans or as
securities owned by the Reserve bank.
An Mr. 'Cane n let ter indicates the Federal Advisory
Council strongly recommended in favor of taking these repurchase acTree•!!ents even with dealers, tal.
,
-inFr, the ground that
if it is determined that they cannot be made leRally an
arriendme-nt to the law should be nought.
Yours vary truly,
Vice Governor.
Mr. M. B. Wellborn, Governor,
Federal Reserve Bank,
Atlanta, llorgia.
3
October 4, 1.923.
Denr Wr. Tans:
T um enclosing copy, of a l'etter T have jlut
,
been writinz to lovernor Wellborn.
Your!; verv truly,
Vice Governor.
Mr. Edwari W. T4Ane, Pr.Imident,
The Atlantic National Pal* of Jacnon-elle,
Jacksorryillo, Florila.
•
EDWARD W. LANE, PRESIDENT
(4 __.*)
,
THOS.P. DENHAM, VICE-PRESIDENT
••
FRED W. HOYT, VICE-PRESIDENT
J. M . QU I NCY,ASST. CASHIER
D. D. U PCH URCH VICE•PRESI DENT
C.W.WAN DELL,AssT. CASHIER
C.O. LITTLE , ASST. CASHIER
D.K.CATHERWOOD,VICE-PRESIDENT
G.E.TH ERRY, ASST. CASHIER
W. .COLE M A N VICE-PRES AND CASHIER
F. B.CH I LDRESS,ASST. CASHIER
THE ATLANTIC NATIONAL BANK OF JACKSONVILLE UNITED STATES DEPOSITARY
CAPITAL AND SURPLUS $1,600,000.00
JACKSONVILLE.FLORIDA
October 2,
1923.
Nr. Edmund Platt, Vice Governor,
Federal Reserve Board,
Washington, D. C.
My dear Mr. Platt:
I beg to refer to recom..aendation No. 2, dated September 17,
of the Federal Advisory Council, and in this connection draw your attention to the fact that the Federal Reserve Bank in the Sixth District
declines to purchase from its member banks Treasury Certificates on
(
I the same terms as they are being purchased by the Federal Reserve Bank
in New York from member banks, corporations and firms.
Don't you think the Federal Reserve System should accord
its member banks at least the same facilities in whatever district
they might be located as are accorded by the Federal Reserve Bank
in New York to firms and corporations not belonging to the System.
Won't you be good enough to give me your views on the subject.
I am not writing to the Governor as he was not at the meeting in Washington and is perhaps not familiar with recortmendation
No. 2 above mentioned.
With kind regards, I am,
Very truly yours,
/amber Federal.-Adv
Council.
•
•
BANK
FEDERAL RESERVEI.
(..
OF MINNEAPOLIS
1151
A :I
OotobPr 2k,l927
.
/4.
gi
GOUZAS5,;,11,
001 2,3 la?,
OFFIOS OF
Federal Reserve Board,
Washington, D.C.
Attention: Mr. Walter L. Eddy,
Secretary
Dear Mr. Eddy:
This will acknowledge receipt of
the Board's letter x3855 dated October 11,1923
The
Federal Reserve Bank of Minneapolis discontinued the
practice of purchasing Government securities and acceptances from member and non-member banks, stock, bond
and acceptance brokers upon repurchase agreements, about
three years afro, and we have no such transactions in our
bank at the present time.
However, for the past year we have
carried some short time U. S. Govrnment obligations
for the Federal Land Bank of St. Paul. It is our practice
to have the Board of Directors of the Land Bank of St. Paul
pass a resolution authorizing the officers to enter into
such transaction (Copy of such a resolution is enclosed
herewith), then when the land bank sells tbese securities
to us, the President writes us a letter offerinfr the
securities for sale and agreeing, in event of our purchasing,
to repurchase at a certain definite date. Both the sale to
us and the repurchase by the Land Bank are made at par and
accrued interest, so that the profit t our institution is
represented by the rate of interest t_ t the Go-rernm nt
securities bear.
Yours res
Gov
or
RAY-C
REOEIVEfl
.•Z--ts
%
L.
-
•
•
Copy
"RESOLVED, That the President, E. G. Quamme,
be authorized to negotiate a sale and repurchase
agreement with the Federal Reserve Bank of Minneapolis,
covering the sale and repurchase of Government Securities
in the aggregate amount of.0,000,000.00 it being hereby
understood that sal.aernment Securities are to be ru=—
purchased from the Federal Reserve_ an.::—of Min=2.110114s,
&n or berare7=676F-9 3. Said Securities to be sold
(at par and accrued interest and to be repurchased at par
\nd accrued interest on date of repurchase.
AND BE IT FURTHER RESOLVED; That the President,
Secretary or Treasurer be authorized to endorse and
transmit by letter, Trust Receipts covering Government
Securities in connection with the sale of such Securities
to the Federal Reserve Bank of Minneapolis, binding the
Federal Land Bank of Saint Paul to repurchase said Securities
at par and accrued interest on or before October 15,1923, in
accordance with the repurchase agree'Tent made with the
Federal Reserve Bank of Minneapolis, under this authority".
( SEAL )
It H. K. Jennings, Secretary of
the Federal Land Bank of St. Paul,
St. Paul, Minnesota, hereby certify
that the above is a true and correct
copy of a resolution adopted by the
Board of Directors of The Federal
Land Ban of Saint Paul at a meeting
held June 26th,1923.
(Si--rned) H. T.c. Jennirr:s
St.Paul,Minnesota,
June 26,1923.
Doar Govc,rnor Wellborn:
acknowledr,o receiut of and thank you for
your letter of the 19th 5nst.0 forwarding to the
Bfff; ns reqUested in letter X-3855, copies of
the repurchase aTyoenont forms used by your bank.
•
•
e
it•
FEDERAL RESERVE BANK
OFFICE OF
G-crvnwoxt_
44'6.,1141°15
,„ .P
October 19, 192.::
‘42
Dear Mr. Eddy:
Agreeable/to the request contained in the
Board's Letter X-3855,' there is enclosed copy of repurchase
agreement form that was used by us several years ago when
purchasing United States Securities from member banks, together with copy of board resolution and receipt incident
These forms were submitted to and approved by
thereto.
the Federal Reserve Board before they were put into use.
These are the only forms that were used by us,
did not engage in any other repurchase transactions.
as we
Yours very truly,
7`/o-
•,
M. B. Wellborn,
Governo r.
LC Aia
Mr. Walter L. Eddy,
Secretary,
Federal Reserve Board,
Washington, D. C.
•
•
•
•
AGRIMIMTT.
=ORAN= OF AGREECENT? Made this
19
day of
, between FEDERAL RESERVE BANK OF ATLAITTA, hereinafter sometimes, for con-
venience, designated the "seller", and
Bank of
,hereinafter sometimes, for convenience,
designated the "purchaser".
WITRIZSETH:
That the said Federal Reserve Bank of Atlanta has agreed to sell,
1
1
and the said purchaser has agreed to buy, upon terms and conditions hereinafter
set out, the following listed United 3tates bonds and notes, hereinafter called
1 bonds:
1. The price to be paid for said bonds is
Dollars
) together with an
amount equivalent to any interest accrued and uncollected on said bonds-at the
time of delivery to the purchaser pursuant to this agreement.
•
2. The purchase price of said bonds is to be paid in full by
years from date, except that the seller
the purchaser on or before
may, at any time prior thereto and at its absolute option, require a payment
of that portion of the purchase
money then unpaid 1132on notice to the purchaser
that it will demand payment of the entire unpaid purchase money sixty days
from the date of said notice.
Any such notice shall be in writing and shall
be sufficiently given, or mailed, duly addressed, to the purchaser at its office
ill
. In event of such notice and demand,
, State of
the purchaser binds itself, its successors and assigns, to make due, punctual
and prompt settlement of the full unpaid purchase money on or before sixty days
from the date of said notice.
3.
day of
At monthly intervals, beginnin: on the
the purchaser will pay on account of t he purchase
Price a sum equivalent to one-tenth of one per cent of the aggregate principal
-'reed to be purchased, which
amount, par value, of the said bonds herein a,
amounts shall be credited monthly on account of the said purchase price,
provided always that nothing herein contained shall alter, abridge or weaken
the force and effect of the absolute covenant, hereinbefore set out, to pa7
in full for said bonds at the expiration of sixty days from and after the
notice herein provided for, and provided, farther, that the entire purchase
price shall be paid in full on or before
years from date, as here-
inbefore set out.
4.
To secure its covenants, obligations and undertal:ings herein
set forth, the purchaser has deposited with the Federal Reserve Bank of
Atlanta certain collateral securities, duly endorsed, set forth and described
in a list hereto attacbod.
nth the consent of the said Federal Reserve Bank
any of the said collaterals may be taken down and acceptable collateral substituted therefor.
.Then and if such substitutions shall be made, the sub-
stituted collaterals shall be subject to this agreement in all
though the same had been originally deposited herellnder.
respects as
The proceeds and
avails of said collateral securities or substitutions therefor shall, when
and if collected by the said Federal Reserve Bank, or for its account, be
held, to the full extent of such proceeds and avails, in lieu of the said
securities, except that if there be no default hereunder at the time any of
said securities are collected or realized on, the said Reserve Bank will
credit the reserve account of the purchaser with the net amount of such
proceeds or avails upon substitution therefor of acceptable collateral of at
lease equal value.
5.
Upon any default hereunder by the purchaser, the seller shall
have the right forthwith to collect, or otherwise liquidate, said securities
or any of them, and to apply the amount, so realized, in discharge, rro tanto,
of the said purchase price, and to do any other or further thing necessary or
proper to be done in order to avail itself of the benefit and security of Ihe
collaterals aforesaid.
6. With respect to any of the securities so deposited, and also
with respect to the bonds which the purchaser hereby agrees to purchase, the
Federal Reserve Bank of Atlanta shall have the right immediately upon any
default hereunder to sell the same or any part thereof at public or private
sale, with or without notice, and to apply the net proceeds of such sale on
the purchase price of said Government bonds.
At any such sale the Federal
Reserve Bank of Atlanta may be a purchaser.
7.
Any remedy or right herein granted shall be cumulative to
any legal or equitable right or remedy which the seller may have in the premises.
O.
Upon any default in the carrying out of any obligation or
undertaking on the part of the purchaser hereunder, the entire purchase money
for said bonds then unpaid shall forthwith become due and payable, without
notice, anything herein contained to the contrary notwithstanding, time
1 being of the essence of this agreement.
9.
Until the purchase price of such bonds has been paid and
liquidated in full, the interest collected thereon shall be the absolute
property of the Federal Reserve Bank of Atlanta, and such interest so collected
by the Federal Reserve Bank of Atlanta for its own account and as its own
property, shall in no wise affect the purchase price or be counted as purchase
money paid in, except that there shall be added to the purchase price above set
out, at the time of final settlement, an amount equivalent to interest earned
and then uncollected.
Until the purchase price of said bonds has been fully
paid, title thereto shall remain in the seller and the same shall be in its
custody and control.
4
e•
10.
••
Should at any time the aggregate value of the securities so
deposited with the Federal Reserve Bank of Atlanta as collateral be insufficient to furnish a margin of security, based upon a ratio of .120 to each .0.00,of
the difference between the par value of the said bonds so sold and the prevailing market price thereof, the purchaser will, promptly upon demand,deposit
additional collateral acceptable to the seller and of a value, in the opinion
of the seller, sufficient to furnish a margin in security, based upon the
ratio aforesaid.
To this end the purchaser covenants and agrees to deposit
and maintain at all times with the Federal Reserve Bank of Atlanta, as collateral, notes, bills of exchange, or securities acceptable to the said Reserve
Bank, in an aggregate amount, at a ratio of 4
,120 to Q100, to cover the difference between the principal amount of the bonds so sold and the
prevailing
market prices therefor.
11.
This contract is made and entered into between the parties
pursuant to and under the authority of the following respective resolutions
evidencing due corporate action of the res_ective parties,to-wit: A resolution of the Board of Directors of the Federal Reserve Bank of Atlanta,
I
passed on Larch 11, 1921, and a resolution of the Board of Directors of the
undersigned purchaser, passed on the
day of
,19
WITNESS the hands and seals of the undersigned parties hereunto
affixed, in duplicate, by their proper officers, duly authorized in the
premises, the day and year first above written.
FEDERAL RESERVE BANK OF ATLANTA
BY
ATTEST:
CASHIER.
(SEAL)
ATTEST:
BANK OF
By
CASHIER.
•
•
•
•
RWEIPT.
STATE OF
comy OF
Received of
FEDERAL RESERVE BANK OF ATLANTA,
Dollars ($
), said amount
being paid by said Federal Reserve Bank of Atlanta, as the purchase price of the
following listed bonds and notes of the United States, hereinafter called bonds,
all of which the undersigned acquired under original subscriptions or by taking
over original subscriptions.
Said amount is accepted by the undersigned in full payment
of said bonds to the full extent of its interest therein, the amount so paid
being the exact amount at which said bonds are now carried on the books of the
imaersigned.
The Federal Reserve Bank of Atlanta is hereby authorized to apply
the entire amount of the purchase money, hereby receipted for, or any part thereof, toward the payment of any notes or other obligations due or to become due by
the undersigned to said Federal Reserve Bank of Atlanta and secured, either in
whole or in part, by the bonds herebefore listed.
http://fraser.stlouisfed.org/
E.
Federal Reserve Bank of St. Louis
•
•
•
In consideration of said purchase of said bonds by said
Reserve Bank and for other good and valuable considerations, the undersigned
agrees with the said Reserve Bank to reduce the aggregate of all of its obligations to said Reserve Bank, secured by United States bonds or notes, by monthly
payments to said Reserve Bank at the rate of
Dollars
) per month, the first payment to be made thirty days
from date, it being understood, however, that such Reserve Bank is under no
obligations to renew or extend any loan or advance heretofore made by it to
the undersigned or to grant to the undersigned any new loan or advance.
•
In consideration of such purchase of said bonds by said
Reserve Bank and for other good and valuable considerations, the undersigned
further agrees with said Reserve Bank to further secure all outstanding loans
and advances made to it by said Reserve Bank, and secured by United States bonds
and notes, by the deposit with said Reserve Bank of additional collateral acceptable to said Reserve Bank equal to the difference between the amount of such
loans and advances made to the undersigned upon the security of United States
bonds or notes and the market value of such bonds and notes, and the undersigned
does covenant and agree to deposit and maintain at all times with said Reserve
Bank acceptable collateral sufficient to keep the said loans and advances secured as aforesaid.
The sale of said bonds to the Federal Reserve Bark of
1
Atlanta and the agreements herein set forth are made under and pursuant to a
resolution passed by the Directors of the undersigned at a meeting of said
Board held on the
, 19
day of
Witness the hand and seal of the undersigned, affixed
by its proper officers duly authorized in the premises, this
, 19
.
BAIX OF
BY
ATTEST:
E.
day of
•
•
•
RESOLUTIO.
3HEREAS, this bank has heretofore acquired, under original subscriptions or by taking over original subscriptions, and now owns certain Liberty
bonds and Victory notes issued by the United States: and
WHEREAS, the Federal Reserve Bank of Atlanta is willing to purchase
certain of said bonds, at a price equivalent to the amount at which this bank
is at this time carrying said bonds on its books, upon condition, however,that
(
this bank will re-purchase the same at the sane price paid therefor by the said
Federal Reserve Bank of Atlanta and upon terms and conditions fully set forth
•
and contained in a contract proposed to be entered into between the said
Reserve Bank and this Bank, a copy of which proposed contract is hereby made
in all respects a part of this resolution and is to be spread upon the minutes
as a part thereof;
THEREFORE BE IT RESOLVED, that the President or Vice-President
and Cashier of this bank be and they are hereby authorized, for and in behalf
of this bank, to sell Government securities which this bank owns, or in which
it may have an interest, to the aggregate par value of
Dollars (
) at and for the price of
Dollars (
), said price being the same as the amount at
which this bank now carries the said securities on its books.
BE IT FURTHER RESOLVED, that said officers of this bank be and
they are hereby authorized and directed to enter, for and in behalf of this
bank, into an agreement with said Federal Reserve Bank of Atlanta to repurchase
said bonds upon the terms and conditions fully set forth in said proposed contract.
Said officers are further authorized to deposit collateral securities
with said Reserve Bank in order to secure the carrying out by this bank of its
obligations as set forth in said agreement.
1
Said agreement ,when executed, to
become the binding corporate obligation of this bank.
BE IT FURTHER RESOLVED, that for and in consideration of the
purchase of said bonds by the Federal Reserve Bank of Atlanta, the said
officers, or any of them, be and they are hereby authorized , empowered and
directed to agree with said Federal Reserve Bank of Atlanta that this bank
will reduce the aggregate of all its obligations to said Reserve Bank,secured
by United States bonds or notes by monthly payments to said Reserve .Bank at .
I
such
rate as shall be required by said Reserve Bank,it being understood,however
2
•
that said Reserve Bank is under no obligation to renew or extend any loan or
advance heretofore made by it to this bank, or to grant to this bank any new
loan
or advance.
BE IT FURTHER RESOLVED, that for and in consideration of the pur-
chase of said bonds by the Federal Reserve Bank of Atlanta, the said officers,
or any of them, be and they are hereby authorized , empowered and directed to
agree with said Reserve Bank that this bank will further secure all of the outstanding loans and advances made to it by said Federal Reserve Bank,secured
by Government War Securities, by the deposit with said reserve Bank of acceptable additional collateral equivalent to the difference between the amount
of such loans and advances so made upon the security of Government bonds or
notes and the market value of the same.
Said officers are further authorized,
empowered and directed to agree with said Federal Reserve Bank of Atlanta to
maintain at all times collaterals sufficient to keep said loans and advances
secured as aforesaid.
BE IT FURTHER RESOLVED, that the directors and officers of this
bank understand that the amount due by this bank on account of the purchase
of such bonds shall, to all intents and purposes, be considered as a part
of
the discount line accorded this bank by said Federal Reserve Bank of Atlanta.
BE IT FURTHER RESOLVED, that said officers, or any of them, be and
they are hereby authorized and directed to do any other or further thing
which
they may deem necessary or proper in order to effectuate this resolution to consummate said agreements and to carry out the same in all respects.
, Cashier of the
Bank of
hereby
, do/certify that the above and foregoing is a
true copy of a resolution introduced and passed at a meeting of the Board of
Directors of said bank held on the
day of
, 19
, which
said meeting was rezularly callad and at whic# a quorum was present.
•
I do further certify that the above and foregoing is a true excerpt
from the minutes and that the same correctly sets forth and declares the corporate action of this bank in the respects set out therein.
•
•
3
•
•
I do further certify that the agreement executed on behalf of this
bank on the
day of
, 19
, by the following officer,
,attested by myself as
to-wit:
Cashier, is identical with a copy of the agreement referred to in the above and
foregoing resolution and that said agreement as executed is the agreement which
was proposed to the said Directors and the execution of which was expressly
authorized by the said Board.
Witness my hand and the seal of said bank, this
day of
,19_.
CASHIER.
FEDERAL RESERVE BANK RECEIVED
\I\
\
F
12
SAN FRANCISCO
)1
/
(Co
;
October 19, 1923.
oFF,cli OF COUNSEL
0
110
Federal Reserve Board,
Washington, D. C.
Subject: Re-purchase by Federal
Reserve Banks of Securities and
Bankers' Acceptances under socalled re-purchase agreements.
Dear Sirs:
As requested in your letter of October 11, 1923,
(X-3855), we are enclosing copy of our Form BD 81 on which
bill6 -dre listed at the time they are acquired under repurchase agreement.
At the foot of this Form, you will find the
vendor's agreement to re-purchase,on or before 15 days, the
bills listed thereon.
We are also enclosing copy of a general hypothecation agreement which is lodged with us by those from whom
bills are acquired under re-purchase agreement.
Yours very tru
Governor.
-RE CEIVE-CD
-"
ACCEPTANCES AND BILLS OF EXCHANGE
OFFERED FOR PURCHASE TO
FEDERAL RESERVE BANK OF SAN FRANCISCO
192
DATE_
BY
NAME OF BANK OR FIRM
CITY
DISCOUNT
WE OFFER HEREWITII FOR PURCHASE BILLS DESCRIBED AS FOLLOWS:
Place Where Bills
Were Drawn
TOTAL
Acceptor
Commodity
Drawer
Due Date
Amount
No. of Days
to
Maturity
Rate
Amount
•
•
REPURCHASE AGREP1E NT
•
• 'F. FROM THE FEDERAL
WE HEREBY AGRE
RESERVE BANK OF SAN FRANC I SCO ON OR BEFORE 15 DAYS
FROM DATE HE BANKERS ACCEPTANCES LISTED ABOVE
AT THE VARIOUS RATES
AGGREGAT I NO
SPEC I Ft ED
OFFICIAL S I GNATCRES
TOTAL
Dar
Certified check in payment of Bills at maturity must be presented to us not later than ELEVEN A. M.—or—check of the payer's bank on the FEDERAL RESERVE BANK
will be acceptable not later than THREE P. M. on due date of bills.
We prefer that Bills of same acceptor be grouped and listed in order of their maturity and that Firm Acceptances and Bankers' Acceptances be grouped on separate sheets.
Credit or check in payment will be given on approval of Bills if desired, subject to correction of errors in discount.
http://fraser.stlouisfed.org/'I—F R 1004-34-A
Federal Reserve Bank of St. Louis
-
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4....;
"
'
-. '''.4.4&i.:.
.1.....: ...... .-- .........-i **.....;.6,
j
.
-
Date
Date
Receipt is hereby acknowledged of acceptances aggregating
Receipt is hereby acknowledged of acceptances aggregating
withdrawn from within agreement.
withdrawn from within agreement.
Signature.
Signature.
Date
Date
Receiot is hereby acknowledged of acceptances aggregating
Receipt is hereby acknowledged of acceptances aggregating
withdrawn from within agreement.
withdrawn from within agreement
Signature.
Signature.
Date
Date
Receipt is hereby acknowledged of acceptances aggregating
•
•
Receipt is hereby acknowledged of acceptances aggregating
withdrawn from within agreement.
_withdrawn from within agreement.
Signature.,
Signature.
1"
Date
Date
Receipt is hereby acknowledged of acceptances aggregating
withdrawn from within agreement.
Signature.
Receipt is hereby acknowledged of acceptances aggregating
withdrawn from within agreement.
Signature.
•
•
ENOW ALL MEN BY THESE PRESMITS that in consideration of purchases and. sales of bills, securities and/or other property effected
between the Federal Reserve Bank of San Francisco ani the undersigned
by virtue of agreements from time to time entered into between the parties,
it is hereby agreed that as collateral security for any and. all liability
of the undersigned to the said. Federal Reserve Bank now or hereafter
existing, matured or not matured, absolute or contingent, and. wherever
payable, including itens held by said Federal Reserve Bank as security
for any obligations of any sort whatever, said Federal Reserve Bank
shall hold., retain and. have a lien upon all moneys, negotiable instrunents,
bonds, stocks, commercial papa', credits, choses in action, claims and demands of every kind, at any time in possession or control of said Federal
Reserve Bank, or any of its agents or correspondents, or in transit to it
by mail or carrier, belonging to, for account of, or subject to the order
of the undersigned; and. said. Federal Reserve Bank shall have the following
rights and powers in respect to such collaterals and. every part thereof
(in addition to any other rights which it may have):
Said. Federal Reserve
Bank may at any time or times collect any of such collaterals, and it may
indorse any thereof in behalf and in the name of the undersigned; and in
case of failure of the undersigned to pay or discharge when due any such
liability, or in case of failure of the undersigned to furnish additional
collateral as hereinafter provided, or in case of the insolvency, general
assignment, receivership, bankruptcy, or failure in business of the undersigned, said Federal Reserve Bank may sell without notice any of said. collaterals at private or public sale, or at broker's board (being at liberty
•
to become the purchaser if the sale is public or at broker's board) and
may apply any and all money or credits, including the proceeds of any such
sale, to the payment of expense of any such sale or sales, or of the
realization or collection of any of said collaterals or of any of said
liability of the undersigned., whether due or not due, and any and. all
liability of the undersigned shall in any of the cases above stated
become due at the option of said Vederal Reserve
Bank.
If the collateral
securing any liability of the undersigned to said Federa
l Reserve Dank
shall at any time be unsatisfactory in araount
or otherwise to said.
Federal :Reserve Bank, or to any of its officers,
the undersigned will
immediately furnish such further security as will,
be satisfactory to said
Federal Reserve Bank.
Said Federal Reserve Bank may assign or transfer
the whole or any part of any obligation or
liability of the undersigned,
and may transfer therewith as collateral securi
ty therefor the whole or
any part of the collateral above referred to,
and the transferee shall
have the same rights and powers with reference
to the obligation or
liability transferred and the collaterals transf
erred therewith, as are
hereby given to said. Federal Reserve
Bank.
It is also agreed. that this
instrument constitutes a continuing agreeme
nt between the undersigned
and the said Federal Reserve Bank
applying to all future, as well as
existirg, transactions between the said.
parties, and also that the force
and effect hereof shall not be termin
ated by the closing at any time of
all transactions between the said partie
s, but that the same shall apply
-2-
thereafter to any new transactions and shall continue in full force
until notice is received in writing by either party from the other
of the intention to terminate it, whereupon, it shall be of no effect
for any indebtedness subsequently created.
IN WITNESS 7111.111130F
has caused these presents to be signed this
day of
192
-3-
October 17, 1923.
tioar 4.iovornor3
I have road with interest your letter of Ootobor
1L in ro LLr.
yatt's opinion on the roixtrchaao contracts.
or your in.fortnation this subjeot will be
up at the Govornorat Conference, and wo are having it
,
further lookod into with a view of tryina to find cons
solution whereby this thing =or be carried on within
the lat•
-
In the meantime I shall be pleased to have
the 02inion of your counsel when ho has it ready for yOLL
ith the assurance of or,/ appreciation, I en,
Very truly yours,
I). B. Jrio:Anger,
Governor.
Ron. W.P
aovernor
Federal Resorvo Bank,
Boston, ;Lass.
•
•
FEDERAL RESERVE BANK
Mb.)
OF NEW YORK
October 16, 1923.
Mr. Walter L. Eddy,
Secretary, Federal Reserve Board,
Washington, D. C.
Dear Mr. Eddy:
In further reference to your letter of October 11,
X-3855, I enclose copies of new and old forms of our Agreement
with dealers in the matter of re-purchase of securities and
bankers' acceptances, also forms of collateral agreement with
us in connection therewith.
The so-called "Old Form" is still in use, except in
cases where we have sent out new letters since the adoption of
the new form. In those cases the "New Form" is in use. The
form entitled "Sales Contract" is at present and has been in
use in connection with the sales of Government obligations.
Very truly yours,
(4)
Ends.
J. H. Case
Deputy Governor.
RECEIVE L.,
3
OFFICE Or
193
juNSEL
•
•
•
OLD FORML,
Date
Federal Reserve Bank of New York,
New York, N. Y.
Dear Sirs:
We have sent you this day, under separate cover, eligible
bankers' acceptances to the amount of $
, sold to you at
_% discount, Which we hereby agree to repurchase at the same
rate on or before
option, t
to
culated.
with agreed right, to be exercised at our
repurchase these bills, either in whole or ]n part, prior
, to which date discount on today's sale has been calAs per detailed memorandum therewith and in accordance with
our general agreement, we are delivering as collateral (describe collateral) of a face value of $
Very truly yours,
0
•
4
•
•
NEV FORM.
Date
Federal Reserve Bank of New York,
New York City.
Gentlemen:
We have sent you this day, under separate cover_ eligible
bankers' acceptances to the amount of $
, sold to you at
_10 discount, whch we hereby agree to repurahase at the sae rate
on or before
with 'agreed right, to be exercised at our
option, to repurchase these bills, either in whole or in part, prior to
, to which date discount on today's sale has been calculated, as per detailed memorandum herewith.
We are delivering as collateral security for the performance
of this contract., acceptance of (name)
(city)
of a face vaule of $
to be held by
you subject to the terms %rid conditions of our general collateral agreement with you.
Yours very truly,
•
•
•
SALES CONTRACT
Federal Reserve Bank of New York,
New York, N. Y.
Gentlemen:
Vie hand you herewith United States Gove
rnment
, amounting to $
par value, listed below, which
we have to-day sold to you for the
sum of $
, and which we here-
by agree to repurchase from you
on or before
, for the sum of
, and interest thereon at the rate
of
•••••••••••0
11
per annum
for the number of days thac the
said securities are held by you.
We are delivc ring as collateral
security for
this contract
ie perLziance of
, of a par value of $
to be held by you subject to
the terms and conditions of our gene
ral collateral
agreement with you.
Very truly yours,
SCHEDULE OF SECURITIES OFFERED UNDE
R AROVE SALES CONTRACT
Description of issue
Maturity
Amount (Par Value)
41
•
•
•
KNOW ALL MEN BY T1BSE PRESENTS that in consideration of purchases and sales of bills, securities and/or other property effected between the Federal Reserve Bank of New York and the undersigned by virtue
of Agreements from time to time entered into between the parties, it is
hereby Agreed that as collateral security for any and all liability of
the undersigned to the said Federal Reserve Bank now or hereafter existing, matured or not matured, absolute or contingent, and wherever payable,
including items held by said Federal Reserve Bank as security for any obligations of any sort Whatever, said Federal Reserve Bank shall hold, retain and have a lien upon all moneys, negotiable instruments, bonds,
stocks, commercial paper, credits, choses in action, claims and demands
of every kind at any time in possession or control of said Federal Reserve Bank, or any of its Agents or correspondents, or in transit to it
by mail or carrier, belonging to, for account of, or subject to the order of the undersigned; and said Federal Reserve Bank shall have the following rights and powers in respect to such collaterals and every part
thereof (in addition to any other rights which it may have):
Said Fed-
eral Reserve Bank may at any time or times collect any of such collaterale, and it may indorse any thereof in behalf and in the name of the undersigned; and in case of failure of the undersigned to pay or discharge
when due any such liability, or in case of failure of the undersigned to
furnish additional collateral as hereinafter provided, or in case of the
insolvency, general assignment, receivership, bankruptcy, or failure in
business of the undersigned, said Federal Reserve Bank may sell without
notice any of said collateral° at private or public sale, or at broker's
board (being at liberty to become the purchaser if the sale is public or
at broker's board) and may apply any and all money or credits, including
the proceeds of any such sale, to the payment of expense of any such sale
or sales, or of the realization or collection of any of said collaterals
or of any of said liability of the undersigned, Whether due or not due,
•
1..
*I
0
ti
•
e•
and any and all liability of the undersigned shall in any of the cases
above stated become due at the option of said Federal Reserve Bank. If
'the collateral securing any liability of the undersigned to said Federal
ifteserve Bank shall at any time be unsatisfactory in amount or otherwise
to said Federal Reserve Bank, or to any of its officers, the undersigned
will immediately furnish such further security as will be satisfactory
to said Federal Reserve Bank.
Said Federal Reserve Bank may assign or
transfer the whole or any part of any obligation or liability of the
, undersigned, and may transfer herewith as collateral security therefor
the whole or any part of the collateral above referred to, and the transI feree shall have the same rights and powers with reference to the obligation or liability transferred and the collaterals transferred therewith,
as are hereby given to said Federal Reserve Bank. It is also agreed that
'this'instrument constitutes a continuing agreement between the undersigned
, and the said Federal Reserve Bank .pplying to all future, as well as existing, transactions between the said parties, and also that the force
and effect hereof shall not be terminated by the closing at any time of
all transactions between the said parties, but that the same shall apply
thereafter to any new transactions and shall continue in full force until notice is received in writing by either party from the other of the
intention to terminate it, whereupon, it shall be of no effect for any
indebtedness subsequently created.
IN WITNESS WHEREOF
has caused these presents to be signed this
day of
192
by
qr •
•
•
•
STATE OF NEV YORK )
) 56
COUNTY OF NEW YORK)
Before me, a Notary Public, in and for the County of
, came
to me known and known to me
to be the person who executed the within agreement and who, being
duly sworn by me, did depose and say that he is a partner of
, and as such is duly authorized to execute
the within agreement in behalf of said partnership, and that he so
executed it for the uses and purposes therein expressed.
•
FEDERAL RESERVE BANK OF HILADELPHIA
33.2
925 CHESTNUT STREET
GEORGE W. NORRIS.00vma
WILLIAM H. HUTT.DEPUTY
WILLIAM A.DYER.cAstitEpt
RICHARD L.AUSTIN
VERNOR
CHAIRMAN OF THE BOARD AND
FEDERAL RESERVE AGENT
HENRY B.THOMPSON
DEPUTY CHAIRMAN OF THE BOARD
ASSISTANT CASHIE
C.A. Mg ILHENNY
JAMES M.TOY
FRANK W.LA BOLD
W.
R.
S\R.ERL
ASSISTANT FEDERAL RESERVE AGENTS
ARTHUR E.POST
WALTER T.GROSSCUP
October 16, 1923.
Mr. Walter L. Eddy, Secretary,
Federal Reserve Board,
Washington, D. C.
My dear Mr. Eddy:
Pursuant to your request
of recent date, we are enclosing a copy
of the re-purchase agreement which we
use for the purpose of extending accommodation to dealers.
OM.Q
R E..CEIVE
•
1Z
........
N., izab
R EC3EIV EC:,
12
.........
0 •
(ke
9(41e 13 .
4
„/
7;
(WI in/
OFFICE Ot-
st r
k
5
larP
flo
•
•
The Federal Reserve Bank,
Philadelphia.
Gentlemen:
We hereby offer for sale to you at
'A discount,
eligible bankers' acceptances in the amount
of
4
listed in the
application
with the understanding that _we hereby agree to repurchase
on or before
with agreed right, to be
exercised at our option, to repurchase these bills, either
in whole or in part, prior to
, to which
date discount on today's sale has been calculated.
If not purchased on or before
you are hereby authorized to sell such said bills and we
agree to reimburse you for any loss or expense incidental
thereto.
(Authorized signature)
•
•
•
•
FEDERAL RESERVE BANK
OF DALLAS
.
OFFICE OF THE GOVERNOR
October 16, 1923.
SUBJECT:
Re-purchase from Federal Reserve Banks of
Securities and Bankers' Acceptances under
so-called re-purchase agreement.
Gentlemen:
This will acknowledge receipt of Board's letter X-3855,
dated October 11, on the above subject.
The number of repurchase agreements entered into by this
bank has been extremely limited and at the present time there
are no agreements of this nature outstanding.
We have never taken bankers' acceptances under a repurchase agreement, with the single exception of the Texas Farm
Bureau Cotton Association, whose acceptances were taken in this
manner after authority had been secured from the Board. We are
attaching hereto copy of the form of agreement entered into with
them.
In a few instances we have taken from our member banks
under repurchase agreements obligations of the United States
ERECEIV'
cd24overnment, but these transactions have been limited to some
three or four banks. We are also attaching sample form of agreement entered into in such cases.
>,
V `;caN
\,
For your information we are attaching hereto form of
agreement entered into with the San Antonio Joint Stock Land
Bank covering the repurchase of U. S. Treasury gold notes, which
.os
is self-explanatory. After entering into this agreement and
prior to its maturity, we were doubtful as to whether a Federal
OCi
1923
Reserve Bank could, with propriety, enter into such an agreeOFFICE OF
ment and, consequently, we exercised our right to demand reCOUNSEL)
purchase, and this matter has been disposed of.
REOEIVE:CP
am.
I hope the above will furnish the information requested.
ss,4
ery truly you s,
4-1
/ Federal, Reserve Board,
lashington, D. C.
Gov
or
•
•
PY
Dallas, Tdxas, 7ovember 27, 1922
Pifteen-Day '3epurchase Agreement
Pederal eserve Bank of Dallas
Dallas, Texas
Gentlemen:
7:0 hand you herewith the following acceptances of the
3eaboard Yational Bank of 7ew York amounting to :500,000, which
we have today sold to you less discount, '4„296.87:
,
Drawn By
Date
Texas Farm Bureau Cotton Ass'n
it
q
!I
if
it
ff
,I
p,
*I
ft
-
,,
!,
it
It
'1
if
If
SI
II
il
,,
Due
11-23-22
11-23-22
11-23-22
11-23-99
11-23-22
11-22-22
11-92-92
11-22-22
11-22-22
11-22-22
1-22-23
1-22-23
1-22-23
1-22-23
1-22-23
2-20-23
2-20-23
2-20-23
2-20-23
2-20-23
Total
Amount
50,000
50,00u
50,000
50,000
50,000
50,000
50,000
50,000
50,000
50,000
500,000
71e hereby agree to ruanglam these acceptances on or
before fifteen days from this date, on a basis of 4-1/8(:; discount
for the unexpired time to maturity.
Yours very truly,
TEXAS FARTI BIrlEAU JOTTOr ASS '17
By
Treasurer
•
•
L; 0 P Y
Dallas, Texas, June 26, 1923
Federal Reserve Panic of Dallas,
Dallas, Texas.
Gentlemen:
':gre hand you herewith 210,00u.00 par value
U. S. Treasury Jertificates of Indebtedness as listed
below, which we hereb' aa'ree to re ur'
1•
u
on June 29, 1923, for the sum of :210,000.00 with
interest from this date at the nate of 4-1 1,..; per annum:
:
Memorandum of 3ertificates
U. 3. Definitive ::ertificates of Indebtedness To. 6865, Series T9 2-1923, maturing
September 15, 1923
-10,000
Yegotiable Subscription Receipt E-1217
covering U. S. 42 Jertificates of
'
-T
Indebtedness, Tax Series T.:-1924,
maturing Marsh 15, 1924
100,000
Yegotiable Subscription Receipt E-1245
covering U. S. 4% .7Jertificates of
Indebtedness, Tax Series 2:1-1924,
maturing March 15, 1924
1022Q2
0
.210,000
Yours very truly,
Republic "ational Bank of Dallas,
By
F. 7. Florence,
e President.
10
11)
p_ 2 X
3an Antonio, Texas
:arch 15, 1923.
7edera1 eserve Bank of Dallas,
Dallas, Texas.
gentle'len:
We hereby agree to sell to you on a basis of ninetynine (99) plus accrued interest, your hundred thousand (400,000.00)
Dollars par value United States Treasury
Gold Yates, Series B126, of date August 1, 1922, maturing September 15, 1926, which
said notes are now held for our account by the 7ational Park Bank
of raw York city, 77ew York, who have been instructed to make
delivery to you on above basis.
In consideration of your purchase of the notes above
referred to, we agree to reu!chase all of said notes from you, on
or before sixty (60) days after the date of tile consumation of our
sale to you, on a basis of ninety-nine (99) plus accrued interest
to the date of said repurchase.
It is further understood and agreed that, should there
be a decline in the market value of these Gold 7otes below 99 at any
prior to their repurchase by us, at your request we will remit you
in cash an amount sufficient to cover the difference between the
market value and the purchase price of 99. Any amounts so remitted
are to be held by you as security for the faithful performance of
our repurchase agreement on the terns above specified. Should we fail
to repurchase in accordance with this agreement, then it is understood
that you may make sale of said notes at the prevailing market price
in Yew York, and the money so advanced shall be used by you to make
good aw deficiency between the market price you may thus receive and
the price we agree herein to pay on repurchase. If the amount so
advanced is not sufficient to make good this difference, then and in
that wvent we shall be liable to you for any remaining difference,
but if the amount so advanced is more than sufficient to make good
such difference, you shall return to us any excess.
very truly yours,
THE SA7 A7TONIO JoirT STOr LAND RA7K,
By
Lune
'oresident.
(Signed
4
e
lte_Oat. _16
Subject:
1923-
Furnhnse
.ities
and banker4o
tn,ps un er
re,Turchsse ngreprients.
D
In accordance with the instructions of the
Board at its meeting this afternoon, .1 have sent
a copy of the attached_letterito each member of .
the Bbitrd and to Mr. Wyatt. It is returned to
youArith the thought that you may wish to acknowledge
\
,sE e.
AIL
*9
FEDERAL RESERVE BANK
OF BOSTON
October 15, 1923.
Dear Governor Crissingor:
I enclose usual weekly report from our .Havana agency, and am
also enclosing extract from a personal letter received by one of
our officers from Mr. Snow who is in charge of the agency.
I have reqd Mr. Wyatt's memorandum in which he expresses the
opinion that Federal Reserve Banks have no power to buy Government
securities and bankers' acceptances under repurchase agreements,
and note that he advises the board to issue a ruling that all
I sincerely
such transactions be prohibited in the future.
hope that the Board will consider this question from every angle
and that no definite action will be taken until after the
conference next month.
Mr. Wyatt's opinion reverses opinions which have hitherto been
You may remember that
given the Board by the Counsel's office.
when the Board authorized the Federal Reserve Bank of Atlanta
to buy a large amount of Government bonds held by the Fourth and
First National Bank of Nashville and to make a contract under
which the Nashville bank obligated themselves to purchase and
the Atlanta bank to resell, the whole question was discussed
from two angles; first, as to the legality of the transaction,
While it wastheconsensus
and second, as to the policy involved.
of opinion that the policy Was bad, the Board nevertheless decided
to allow the transaction to be made because of the emergency
Agreement as drawn by
which confronted the Nashville bank.
the Atlanta bank was reviewed by the Board's Counsel.
In reading Mr. Wyatt's brief I was struck by the fact that he was
He did not seet
looking at the question from one angle alone.
to take into consideration the merits of a policy looking toward
the maintenance of a broad market for Government securities
and bankers' acceptances, and he ignored altogether the powers
of Federal Reserve Banks as defined in Section 4 of the Act.
Among the powers enumerated is the right to make contracts.
I do not think that there is any question that subject to regulations of the Board, Federal Reserve Banks havethsright to buy and
sell bonds and notes of the United States in the open market,
and that they also have the right to buy and sell bankers' acceptances
Having acquired such assets I do
and eligible bills of exchange.
not see how there can be any question as to the right of a bank,
under the powers given it in Section 4, to make a contract or agreement
as to the disposition of these securities.
...e• die
Our Counsel., Mr. Weed, agrees with me on this subject and at my
request is preparing a brief which I shall be glad to send you
when he has it ready.
If as a matter of policy, the Boprd should decide that no bills or
Government securities should be bought under repurchase agreements,
Iwould suggest that the ruling be based entirely upon the
Board's conception of a proper policy; but for the Board to take
the position that such transactions are illegal would be to reverse
its own position in the past and might have a serious effect upon
the Atlanta Bank if the Fourth and First National Bank of
Nashville should make good its threat to bring suit against that
institution.
Withallrespect to Mr. 'Wyatt, I think that his opinion on this
subject should be carefully reviewed before it is accepted.
1Ter7 truly yours
Harding,
rrovernor.
Hon. D. R. Crissinger, Governor,
Federal Reserve Board,
Washington, D. C.
ga,
/
FEDERAL RESERVE BANK
OF BOSTON
•
Octol:or 15, 1923.
My dear la.. Eddy:
$4.c
)
In accordance with your rogues; we hand
61TarCliase agree—
you herewith, copies of i-ments used by this bank in connection
with purchases of United States securities
and bankers' acceptances.
Very truly yours
W .G.
.
Govornor.
Hr. W. L. Eddy, Secretary,
Federn1 Reserve 1:.onrd,
Washington, D. C.
ViStE.IV EO
193
ea IS
Gk.)Uc'43Et
(OFFICE. OF
FREPURCHASE AGREEME.
U. S. Securities
e Federal Reserve Bank
Bost°n, Mass.
Date
We hand you herewith United States Government securities amounting to $
par value,
listed below, which we have today sold to you for the sum of $
and w!!i_c_l-LITe.. rsLy) __q&r_ee to
.
.1 .
repu chase from you on or before
days from the date hereof for the sum of $
and in(Not to exceed 15)
terest thereon at the rate of
per cent per annum for the number of days that the said securities are held by you.
Official Signature
Issue
Due
Rate
Days
Par Amount
Price
Cost
EPURCHASE AGREE111011k
p
BANKERS' ACCEPTANCES
Date
To the Federal Reserve Bank,
Boston, Mass.
We hand you herewith the bankers' acceptances listed below, aggregating $
, which we hereby
agree to repurchase fr9m you on or before
days from the date hereof at the various rates specified, delivery to be
taken by us at the banking rooms of the Federal Reserve Bank of Boston unless otherwise requested in writing by us. It
is understood and agreed that in the event of delivery being made elsewhere the acceptances will be transmitted by registered
mail uninsured, unless we make written request to the contrary, and that all costs and any loss resulting from shipment of
said acceptances are to be borne by us.
B. D. 1
Official Signature„
Acceptor
•
Due
Days to Run
Bills
Agreement
Rate
Principal
Discount
I
I
.
- ---
..
--,
—
---------
Net
Date,
Receipt is hereby acknowledged- of acceptances aggregating $_
withdrawn
from within agreement.
Signature
Date,
withdrawn
Receipt is hereby acknowledged of acceptances aggregating $
from within agreement.
Signature
Date,
withdrawn
Receipt is hereby acknowledged of acceptances aggregating $
from within agreement.
Signature
Date,
Receipt is hereby acknowledged of acceptances aggregating $
withdrawn
from within agreement.
Signature
Date,
withdrawn
Receipt is hereby acknowledged of acceptances aggregating $
from within agreement.
Signature
er
•
•
FEDERAL RESERVE BANK
OF CLEVELAND
October 15, 1923.
SUBJECT:
Re-purchase by Federal Reserve Banks
of Securities and Benkers' Acceptances
under so-called re-purchase agreement.
Mr. Walter L. Eddy, Secretary,
The Federal Reserve Board,
idashington, D. C.
Dear Sir:
I am very glad to give you the informaticn requested in your letter
It has not been our policy to purchase under re-purchase agreements
X-5855.
Government securities from our member or non-member banks nor from stock and
bond houses.
In fact, we have not been called upon for such accommodation.
'hen our member banks are in need of funds and have Government securities
upon which they desire to borrow, they pledge these securities to a collateral
note drawn for the desired period (up to fifteen days) and discount such note
with us.
In the early days of the oar period and prior to the amendment to
the Federal Reserve Act authorizing direct advances to member banks by Federal
Reserve Banks, we did for a short time purchase Certificates of Indebtedness
under a so-celled "Sale and Re-purchase Agreement", a copy of e.hich is enclosed herewith (marked No. 1) but this practice was discontinued with the
amendment to the Act mentioned above.
Regarding the purchPse of acceptances under a re-purchase agreement this procedure Was followed to a very limited extent and only in carrying
local dealers in acceptances for short periods pending the sale of bills held
g ErTEiiigilios.
Our only local dealer in bills has discontinued their
lein Department, and for some time we have not been called upon for such
accommodation.
The form used in such transacticns is also enclosed (marked
No. 2).
There is another form enclosed (marked No. 3) which is used in discounting for our member banks, for short periods, eligible paper; this is
practically acquiring paper from our member banks under a re-purchase agreesuch transactions are Quite active and were put into operation on the
ment.
suggestion of the Federal Reserve Board at or about the time thet the United
States Revenue Pet was passed, which included the requirement of a stamp tax
of two cents per hundreJ dollars on notes secured by commercial paper.
Very t
RECEIVED
RAW
. .
Zd
ours,
,
•.•
.GoTernor 491
OG
I,
01-7FICE. OF
Lei g
••
• °'
411
•
AGREEMENT FOR SALE AND RE-PURCHASE OF CERTIFICATES OF
INDEBTEDNESS OF THE UNITED STATES OF AMERICA
DATE
PLACE
To the Federal Reserve Bank of Cleveland:
We hereby offer to sell to you Certificates of Indebtedness of the
United States of America,listed on the attached schedule submitted herewith, of an aggregate par value of
Dollars,
at par less discount at
% for
days.
Upon your acceptance of this offer, you will forthwith credit the
purchase price to our account with you, and thereupon we shall be
"or
irrevocably bound to re-purchase said certificates from you, at par,
•
days after the date on which you credit our account
with the proceeds of said sale to you. In the event we fail so to do, you
are hereby authorized, at the close of business on the day on which we
agree to re-purchase said certificates, to charge our account with the
par value thereof, and return said certificates to us at our expense.
Bank
Place
By
AGREEMENT FOR SALE AND RE-PURCHASE OF CERTIFICATES OF
.
INDEBTEDNESS OF THE UNITED STATES cF AMERICA
DATE
PLACE
To the Federal Reserve Bank of Cleveland:
We hereby offer to sell to you Certificates of Indebtedness of the
United States of America,listed on the attached schedule submitted herewith, of an aggregate par value of
Dollars,
at par less discount at
% for
days.
Upon your acceptance of this offer, you will forthwith credit the
purchase price to our account with you, and thereupon we shall be
irrevocably bound to re-purchase said certificates from you, at par,
days after the date on which you credit our account
with the proceeds of said sale to you. In the event we fail so to do, you
are hereby authorized, at the close of business on the day on which we
agree to re-purchase said certificates, to charge our account with the
par value thereof, and return said certificates to us at our expense.
Bank
COPY TO BE RETAINED BY
MEMBER BANK.
Place
By
D 23
w
500 81E78
2-21
AGREEMENT FOR
LE AND RE-PURCHASE OF.ANKER'S ACCEPTANCES
CLEVELAND. OHIO
TO FEDERAL RESERVE OF CLEVELAND:
WE HEREBY OFFER TO SELL TO YOU BANKER'S ACCEPTANCES AS LISTED HEREON AND SUBMITTED HEREWITH, OF AGGREGATE
LESS DISCOUNT AT THE RATES PER ANNUM SPECIFIED HEREON. FOR FIFTEEN DAYS.
AMOUNT OF $
UPON YOUR ACCEPTANCE OF THIS OFFER. YOU WILL FORTHWITH PAY THE PURCHASE PRICE TO US. AND
THEREUPON WE SHALL
BE IRREVOCABLY BOUND TO RE-PURCHASE SAID ACCEPTANCES FROM YOU. AT THE SAME RATES OF DISCOUNT, ON OR BEFORE
I1TiEN
DAYS AFTER DA fE.
BY
ACCEPTOR
VP
DUE
DAYS
RATE
PRINCIPAL
DISCOUNT
NET
• •
DA.
•
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE S.
DATE
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE S
DATE
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE $
DATE
•
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE S
DATE
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT. AS FOLLOWS:
SIGNATURE
RE-SALE PRICE
23
500 SETS
2-21
AGREEMENT FOR LE AND RE-PURCHASE OFOANKER'S ACCEPTANCES
.
v
CLEVELAND. OHIO
TO FEDERAL
RESERVE OF CLEVELAND:
WE HEREBY OFFER TO SELL TO YOU BANKER'S ACCEPTANCES AS LISTED HEREON AND SUBMITTED HEREWITH, OF AGGREGATE
LESS DISCOUNT AT THE RATES PER ANNUM SPECIFIED HEREON, FOR FIFTEEN DAYS.
AMOUNT OF $
UPON YOUR ACCEPTANCE OF THIS OFFER. YOU WILL FORTHWITH PAY THE PURCHASE PRICE TO US, AND THEREUPON WE
SHALL
BE IRREVOCABLY BOUND TO RE-PURCHASE SAID ACCEPTANCES FROM YOU. AT THE SAME RATES OF DISCOUNT. ON OR BEFORE FIFTEEN
DAYS AFTE.I-2 DATE.
BY
ACCEPTOR
DUE
DAYS
RATE
PRINCIPAL
DISCOUNT
NET
DA10.
•
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE $
DATE
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE S
DATE
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE S
DATE
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE S
DATE
RECEIPT IS HEREBY ACKNOWLEDGED OF ACCEPTANCES WITHDRAWN FROM THE WITHIN AGREEMENT, AS FOLLOWS:
SIGNATURE
RE-SALE PRICE S
D 56
•
2M
6-21
SPECIAL API:VIVI/4N FOR REDISCOUNT FOR
LOS OR LESS OF
ILLS OF LONGER MATURI.
Date
To the Federal Reserve Bank of Cleveland:
1
19
The undersigned member bank hereby makes application for the rediscount,
for
days at your current published rate, of the notes, drafts, and bills of exchange
enclosed herewith and listed in detail and totaled on the reverse side of this application; and
hereby certifies that to the best of its knowledge and belief, the loans which are evidenced by
these notes, drafts and bills of exchange were made for agricultural, industrial or commercial
purposes; and that they conform in all other respects with the provisions of the Federal Reserve
Act and the regulations issued by the Federal Reserve Board relating to rediscounts.
It is hereby certified that no borrower upon the notes, drafts and bills of exchange hereby
offered for discount to the Federal Reserve Bank of Cleveland and scheduled in this application,
is liable to this bank, or company, in an amount, or amounts, greater than ten percentum of the
capital and surplus of this bank, or combany, (bills of exchange drawn against actually existing
values and commercial or business paper actually owned by such borrowers not included) and
that none of said borrowers will be permitted to become liable to this bank in excess of the said
amount while his notes, drafts or bills of exchange are under discount with the Federal Reserve
Bank of Cleveland.
You are hereby authorized to charge each item to our account at the expiration
of
days.
The following information relative to the condition of this bank at the date of this application is hereby certified:
Capital
Surplus
Undivided Profits
Including certificates of deposit /
for money borrowed
Bills Payable
With you
LWith
others
rWith you
Bills Rediscounted
[With other Banks
Bonds borrowed
Bonds or Securities Pledged
Reserve
or delivered under agreement I
to re-purchase
% with Federal Reserve Bank, amounting to
Total officers' and directors' liability reported in last called statement.
Any material increase in abcve item since?
If so, approximate amount
Purpose for which this rediscount is made
NOTICE
Prompt action on applications will
be facilitated if the applying bank
will furnish information concerning
makers or endorsers of paper submitted, on the information slips provided for this purpose.
Signed
By
(Signature and title of officer or officers
designated in authorizing resolution.)
PRINCIPAL REQUIREMENTS FOR DISCOUNT
Authorizing Resolution:
Certified copy of the resolution of the Board of Directors of the member bank authorizing the proper
officers to rediscount, must be on file at the Federal Reserve Bank.
Application:
Each application should be in the form prescribed by this bank, and must be signed by an officer or
officers authorized by resolution to rediscount.
Endorsement of Member Bank:
All paper must be endorsed by one of the officers named in the resolution authorizing officers to rediscount with the Federal Reserve Bank, in the following form:
National Bank of
By
(Title of signing officer.)
Character of Paper Eligible:
Paper to be acceptable must have a fixed maturity, and be based upon current commercial or industrial
transactions, or agricultural or live-stock operations. The proceeds must have been used, or must have been
borrowed to be used, for the costs of producing, purchasing, carrying or marketing goods in one or more of
the steps of the process of production, manufacture and distribution. A statement showing the borrower to
have reasonable excess of quick assets over current liabilities may be accepted as evidence that paper represents a current transaction. Paper secured by collateral such as warehouse receipts representing staple commodities, may be accepted if otherwise eligible.
Maturities:
Commercial paper must have a maturity at the time of rediscount of not more than 90 days; agricultural
or live-stock paper may have a maturity at the time of rediscount of not more than six months.
Negotiability, Etc.:
Autograph signatures of makers and endorsers must appear on all notes and endorsements. All instruments must be unquestionably negotiable. Title of any collateral should be clearly conveyed, together with
insurance.
Paper Not Eligible:
No paper is eligible for rediscount which has been issued for carrying or trading in investment securities, for speculative investment, or for permanent or fixed investment of any kind. Demand notes, not
having fixed maturities, are not eligible.
Rat
Rate
by
b
Ch
Member
Bank
Amount Due at Maturity
PriXipal Plus Interest
MAKER'S NAME
NATURE OF BUSINESS
LOCATION
ENDORSERS(AND COLLATERAL,IF ANY)
Renewal? Customers or
Purchased
Paper?
Yes or No
Signed
c
ot t ment
On File?
If so - Date
fr
I
I
'
1
I
•
All
•
-
REMARKS
TOTAL DISCOUNTED To
,
TO BE FILLED IN BY FEDERAL RESERVE BANK
Date Received
Amount Accepted $
Discount Deducted
Amount Credited
Date Approved
By
By
By
D 56
2N1
6-21
SPECIAL APP MN FOR REDISCOUNT FOR*OS OR LESS OF
E ILLS OF LONGER MATURI
al
Date
To the Federal Reserve Bank of Cleveland:
2
19
The undersigned member bank hereby makes application for the rediscount,
for
days at your current published rate, of the notes, drafts, and bills of exchange
enclosed herewith and listed in detail and totaled on the reverse side of this application; and
hereby certifies that to the best of its knowledge and belief, the loans which are evidenced by
these notes, drafts and bills of exchange were made for agricultural, industrial or commercial
purposes; and that they conform in all other respects with the provisions of the Federal Reserve
Act and the regulations issued by the Federal Reserve Board relating to rediscounts.
It is hereby certified that no borrower upon the notes, drafts and bills of exchange hereby
offered for discount to the Federal Reserve Bank of Cleveland and scheduled in this application,
is liable to this bank, or company, in an amount, or amounts, greater than ten percentum of the
capital and surplus of this bank, or company, (bills of exchange drawn against actually existing
values and commercial or business paper actually owned by such borrowers not included) and
that none of said borrowers will be permitted to become liable to this bank in excess of the said
amount while his notes, drafts or bills of exchange are under discount with the Federal Reserve
Bank of Cleveland.
You are hereby authorized to charge each item to our account at the expiration
of
days.
The following information relative to the condition of this bank at the date of this application is hereby certified:
Capital
Surplus
Undivided Profits
With you
1 Including certificates of deposit)
for money borrowed
3 With others
Bills Payable
rWith you
Bills Rediscounted i
Mith other Banks
Bonds borrowed
f
Bonds or Securities Pledged z or delivered under agreement 1
to re-purchase
Reserve
% with Federal Reserve Bank, amounting to
Total officers' and directors' liability reported in last called statement_
Any material increase in abcve item since?
If so, approximate amount
Purpose for which this rediscount is made
NOTICE
Prompt action on applications will
be facilitated if the applying bank
will furnish information concerning
makers or endorsers of paper submitted, on the information slips provided for this purpose.
Signed
By
(Signature and title of officer or officers
designated in authorizing resolution.)
PRINCIPAL REQUIREMENTS FOR DISCOUNT
Authorizing Resolution:
Certified copy of the resolution of the Board of Directors of the member bank authorizing the
proper
officers to rediscount, must be on file at the Federal Reserve Bank.
Application:
Each application should be in the form prescribed by this bank, and must be signed by an officer or
officers authorized by resolution to rediscount.
Endorsement of Member Bank:
All paper must be endorsed by one of the officers named in the resolution authorizing officers to rediscount with the Federal Reserve Bank, in the following form:
National Bank of
By
(Title of signing officer.)
Character of Paper Eligible,.
Paper to be acceptable must have a fixed maturity, and be based upon current commercial or-industrial
transactions, or agricultural or live-stock operations. The proceeds must have been used, or must have been
borrowed to be used, for the costs of producing, purchasing, carrying or marketing goods in one or more of
the steps of the process of production, manufacture and distribution. A statement showing the borrower to
have reasonable excess of quick assets over current liabilities may be accepted as evidence that paper represents a current transaction. Paper secured by collateral such as warehouse receipts representing staple commodities, may be accepted if otherwise eligible.
Maturities:
Commercial paper must have a maturity at the time of rediscount of not more than 90 days; agricultural
or live-stock paper may have a maturity at the time of rediscount of not more than six months.
Negotiability, Etc.:
Autograph signatures of makers and endorsers must appear on all notes and endorsements. All instruments must be unquestionably negotiable. Title of any collateral should be clearly conveyed, together with
insurance.
Paper Not Eligible:
No paper is eligible for rediscount which has be.en issued for carrying or trading in investment securities, for speculative investment, or for permanent or fixed investment of any kind. Demand notes, not
having fixed maturities, are not eligible.
,
Amount Due at Maturity
MATURITY
PrAipal Plus Interest
L
TA
I
_
Kate
Charged by
Mber
em
Bank
MAKER'S NAME
NATURE OF BUSINESS
r
1
(
, ENDORSERS AND COLLATERAL,IF ANY)
LOCATION
Renewal? Customers or
Purchased
Paper?
ii es or No
Signed
Statement
On File?
If so - Date
,
•
.
.
-
.
.
..
•
.
.
____DurpucATE____
TO DE---REFTA I N ELI)
APPLYII,,_. ,K
BAR
.
•
•
.
,..N.
_
_
_
_
REMARKS
TOTAL DISCOUNTED To
TO BE FILLED IN BY FEDERAL RESERVE BANK
Date Received
Amount Accepted $
Discount Deducted
Amount Credited
Date Approved
By
By
By
•
•
FEDERAL R ESERVE BANK
w.j.BAI LEY,GOVE Amon
ASA E. RAMSAY.
OF
KANSAS CITY
-
C. A .WORTH I NOTON,DEPuTY G<iicfentiort
J.W. HELM,CASH MR
'
JOHN PH IL LI PS,Jr4 ,AssT CAaER
E. P. TYNER,ASS"'CASHIV
CHAIRMAN SOARD OF DIRECTORS
AND FEDERAL RESERVE AGENT
HEBER
MORD,
DEPUTY CHAIRMA
BOARD OF DIRECTORS
G. E . BAR LEY, ASsT.CAS
C. K. BOAR OMAN,
MW.E.PAR K, Assi- Sttc
IER
A.G. FROST,As§T.0
ASST FEDERAL RESERVE AGENT
AND SECRETARY
A.M. M.ADAM S,AskT CAkHIER
0.14.
PMCI N,Assr.
ER
October
15th, 1923.
Mr. Walter L. Eddy, Secretary,
Federal Reserve Board,
Washington, D. C.
Dear Mr. Eddy:
In compliance with the request contained in
Board's letter X-3855, there is enclosed copy of form
of Purchase and Resale Contract which we have entered
into on several occasions with our member banks and
with the Federal Land Banks at Wichita and Omaha.
Yours very truly,
Encl.
U..:iir'x
I
EOCiNIET
;
9i
%7
44
os•
•
•
• •
PURCHASE AND RESALE COITTRACT.
To Federal Reserve Bank of Kansas City,
Kan sas Cit7, 7assouri,
Gentlemen:
We hand you herewith United States Government securities amounting to
par value as listed below,
which we have today sold to you for the sum of
and which we hereby agree to repurchase from you on or before
or the sum of
the rate of
and interest thereon at
per annum for the number of days that the securities are held
by you.
In Consideration of this repurchase agreement and as collateral security
•
........•••••••••••..••••••••
for the performance of this contract, we hereby agree to deliver to the Federal
Reserve Bank of Kansas City an additional arrount of acceptable United States Government issues as and when, in the opinion of the Federal Reserve Bank of Kansas City,
market conditions warrant.
It is further agreed that in the event repurchase is not made on or
before
, authority is hereby given the Federal Reserve Bank of
Kansas City to sell the United States GOvernment securities
covered by this
contract, together with such United States Government issues as have been pledF!ed as
additional securit7, if any, and to apply the proceeds arising therefrom in payment
of this obligation, remitting any residue after payment of expenses incurred in
connection therewith, if any, to us.
BY
President.
SCHEDULE OF SIVTRITIES OFFv:HED UNDER ABOVE PURCHASE AND RESALE CONT7ACT
Description of Issue
Maturity
Amount (Par Value)
FEIDRAL RESERVE
230 SOUTH
AN K OF CH ICAGO
LA SALLE
STREET
,
„
9.1.;:c:00,
117
7
;7
October 13, 1923...,
Oer 43.
5
*P4-
Mr. Walter L. Eddy, Secretary,
Federal Reserve Board,
Washington, D. C.
Dear Sir:
In accord with your letter X-3855, dated
October 11th, we are enclosing a copy of our agreements which we enter into with a few reputable dealers
to repurchase from us within fifteen days Bankers'
Acceptances, U. S. Treasury Certificates of Indebtel3ECEIVED
,1
ness and notes.
9E
0)
Yours very truly,
OCT 15 1923
ZEL__
FC
OF COUNSEL
•
•
ive•
iederal T.ieserve Bank,
Chicago, Illinois.
GentlAmen:
W9
hereby offer to you for purchase at par,
United States Treasury Certificates of Indebtedness or
"Zotes, described below:
In consideration of your purchasing the above
Securities, we hereby agree to renurchane the same from you
on or before fifteen days from date at par and accrued
interest.
Please place proceeds of above to the credit of
for our use and advise them.
Yours very truly,
Federal Reserve Bank,
Chicaco„ Illinois.
Gentlernen:
We hereby offer to you for purchase at par,
United States Treasury 'Totes, described tolow:
In consideration of your purchasing the above
Treasury rotes, we hereby agree to repurchase the same from
you on or before fifteen days from date at par and accrued
interest.
In, further consideration of the above agreement,
w3 hereby pledge as Collateral an additional amount of these
Securities equal to 2
of the par value.
Please place proceeds of above to the credit of
for our use and advise them.
Yours very truly,
0
•
a•
•
Federal eserve Bank,
Ihicago, Illinois.
Gentl amen:
hereby offer to you for purchast at
rer cent
discount, banker's acceptances described below and delivered to you herewith.
.43ank
It
(
Lk
It
C
.4
Please place proceeds of the above to the credit of our
account with tho
Bank.
7:e hereby certify that the rate above stated represents the
rate of discount at which the said accertances were purchased by us.
In consideration of your purchasing said acceptances, we hereby
agree to re urchase the same from you on or before fifteen days at the rate
iscount eX—thich sold to you.
o
Very truly yours,
L
FEDERAL RESERVE BANK
OF RICHMOND
ApP/
_
October 13, 1923.
LIVED
011
/11- . 1.0
SUBJECT:
Repurchase Agreements.
""
frze 1 .
9( VIP
\RN
Federal Reserve Board,
Washington, D.C.
c31Th %923
OFFICE OF couNsEL
Gentlemen:
Supplementing our letter of yesterday under
the above caption, I am sending you herewith comments
of our Counsel upon the opinion rendered by the Counsel of the Board, in which particular reference is
made to the form of repurchase agreement used by this
Bank.
We have been of the opinion, as stated by
our Counsel, that our form of agreement is, in natur,_
If that is held to
and effect, a promissory note.
be the case, there will remain to be considered whether it is subject to the stamp tax when used by member
banks in obtaining advances on their bills and notes
not secured by Government obligations.
Very truly yours,
GJS-CCP
1 Encl.
GEO. J. EEAY
Gove
R EC EIVEDI
"
42,4t4‘1
0
4r/
AO,/
.
•
OP
RAI_ RESERVE BANK OF Ri
/
031FICE COZT.ZESPOP.IDIZI'14:11;
4
To Mr. George J. 5eay, Governor.
M.
G. Wallace, _Counsel.
Date
_
October 12, 1923.
Subject
Repurchase agreements of the
Federal Reserve Bank of Richmond.
My deer Governor Seay:
I have read with interest the opinion of the General Counsel
of the Federal Reserve Board, dated August 18, 1923, upon the subject of
repurchase agreements by Federal reserve banks. I thoroughly agree with
Mr. 7:yatt in his conclusion that if a repurchase agreement contains a
provision under which the so-called seller is bound to repurchase the
thing sold for an amount named in the agreement and at a time named in
that agreement, and the so-called buyer is bound to resell the thing at
the time and for the price mentioned, then the transaction is essentially a loan of money and an agreement to repay the same, and the fact
that
the parties use words which imply a sale and an absoiute transfer
of
title to the property does not alter the real nature of the transa
ction,
for, in such cases, the transfer of the property must be regarde
d as collateral to the main intent of the parties, which is
the advance end repayment of money.
The repurchase agreement used by us contains an absolu
te promise on the part of the member bank to pay us the face
value of the paper
sold on a fixed date. Our agreement, therefore, falls
within the first
class of transactions mentioned on Page 4 of Er. 71,ratt'
s opinion, and,
as I stated above, I thoroughey agree Tith him in
saying that transactions
had under this form of agreement are loans and not
sales.
It follows from the above that we could only proper
ly use this
form, if at all, in making advances to member banks
and could not use it
when purchasing pronerty upon the open market. I
do not, however, fully
follow Mr. ':Iyatt to his conclusion that the
transaction is a eoan but the
instrument that evidences the loan is not a promis
sory note and that,
therefore, we could not engage in transactions
of this character, even
uncier :oction 13.
I think it may be safely assumed that the
instrument in question is not a negotiable note. However, the term
"promissory note" is
not limited to notes which comply with the
somewhat rigid requirements
of the Negotiable Instrument Law, but is aeplie
d freely to instruments
evidencing an agreement to pay money,
elthcuet such instruments could not
by any chance be considered negotiable
notes.
Black's Law Dictionary defines a
promissory note as follows:
"N promise or engagement in writin
g to pay a specified sum at a time
therein limited, or on demand, or at
sight, to a person therein named,
or to his order, or bearer."
It seemed to me that the very reason
ing which led to the conclusion that the transaction evidenced
by our repurchase agreement. was
a loan and not a sale, because the
agreement amounted to an absolute
MISC. 14
OP
RAL RESERVE BANK OF R1,4114
OFFICE COMIESPONDENCE
To
From
Mac
Subject
Mr. George J. Seay, Gavernor.
M. G. Tallace, Counsel.
October 12, 1923.
Repurchase agreements of the
Federal Reserve Bank of Richmond.
- 2 -
promise to repay the purchase price, led also to the conclusion that
the written instrument which evidenced this engagement to pay the
specific sum (that is to say, the face value of the paper transferred),
at a time mentioned in the repurchase agreement to the Federal Reserve
Bank of Richmond, was a promissory note. Er. 'Iyatt's opinion, of course,
does not deal with our particular form of note, and I am not familiar
with the forms in use by other banks; but I notice that his chief reason
for holding that a repurchase agreement is not a promissory note is that
the "debt in such cases is not evidenced by notes of aay kind". Our
written repurchase agreement contins, I believe, a complete statement
of the transaction, including specifically the amount which must be repaid and the time at which it is to be repaid. It, therefore, seems to
me that it would necessarily follow that if it be held that the transaction evidenced by the agreement creates a debt, then it must follow
that the written note or memorandum containing a full statement of the
transaction contains the evidence of the debt.
I need hardly to say that, since the real question involved
in this matter is whether or not our repurchase agreement should be regarded as a promissory note within the meaning of the Federal. Reserve
Act, it is a question which will, for all practical purposes, be settLed by a ruling of the Board or an opinion of its Counsel. I au, therefore, taking the liberty of suggesting that you submit to the Counsel
for the Board a copy of our repurchase agreement and request a ruling
as to whether or not it is proper to continue to use it as a substitute
for a fifteen-day note in transactions with member banks.
Very truly yours,
". G. 'allace,
Counsel.
•IP
R ECE1V ED'
AW
,
. 1s,. 12
FEDERAL RESERVE BANK
OF
ST. Louis
&
ta 110!
<
.z
,
I
<
e.
(
-r-
F
6
°C1 11 Vr#
October 13, 1923
Federal Reserve Board,
Washington,
D. C.
Att.
r. W. L. Eddy,Secretary.
Gentlemen:Replying to your letter of :Ow_
11th X-3855, youare advised- at this bank
tI1T
severcarried any Government securities
for member banks, nonmember banks, or dealers under so called re-purchase agreement.
There have been times in the past
when we have carried a222Ilaraes for dealers
having offices in this district. The form of
re-purchase agreement used in such cases is •
enclosed herewith.
Very truly yours,
Atteb
Deputy Gove
or.
•
37
AMOR
CHASE AGRISAPENT
BANKERS' ACCEPTANCE
FEDERAL RESERVE BANI5. OF ST. LOUIS.
Date
We hereby agree to repurchase from the Federal Reserve Bank of St. Louis, on or before 15 days from
date, the Bankers' Acceptances herein described, aggregating $
_ at the rates specified.
certify that the rate stated below represents the rate of discount at which the said acceptances.were
We
purchased by us.
Please credit proceeds through the following bank,
Official Signature.
ACCEPTOR
Due
Days
Rate
Principal
Discount
Net
Date,
,
•
Receipt is hereby acknowledged of acceptances aggregating $
from within, agreement.
withdrawn
Signature
Our Numbers, from
to
Date,
Receipt is hereby acknowledged of acceptances aggregating $
from within agreement.
withdrawn
Signature
Our Numbers, from
to
Date,
Receipt is hereby acknowledged of acceptances aggregating $
from within agreement.
withdrawn
Signature
Our Numbers, from
to
Date,
Receipt is hereby acknowledged of acceptances aggregating $
from within agreement.
withdrawn
Signature
Our Numbers, from
to
Date,
Receipt is hereby acknowledged of acceptances aggregating $
from within agreement.
withdrawn
Sigma urc
Our Numbers, from
to
•
•
•
•
FEDERAL RESERVE BANK
or RICHMOND
October 12, 1923.
SUBJECT:
Repurchase by Federal Reserve Banks of Securities and
Bankers' Acceptances under so-called repurchase agreement.
Federal Reserve Board,
Washington, D. C.
Gentlemen:
In r:,sponse to t'yk request contained in the Board's letter
X-3355, October 11, 1923f we enclose two copies of our Circular
1;o. 130, under the title "Anticipations of Rediscounted Paper and
Repurchase Agreements," on page 3 of which will be found the only
form of repurchase agreement used by this Bank.
It will be noticed that this form is an agreement or promise
to pay to the Federal Reserve Bank of Richmond on a specified date a
certain sum, comprising the aggregate sum of eligible bills and notes,
of varying maturities, offered to us for the purpose of obtaining
short-time advances; and that this form of agreement was used not in
substitution of but in addition to the direct provision of Section 13
of the Act, which permits the Federal Reserve Banks to make advances
to their member banks on their promissory notes for a period not exceeding 15 days.
It will be understood that the primary purpose of
the arrangement is to obviate the use of revenue stamps required to
be affixed to the ordinary form of promissory note of member banks when
not secured by Government obligations.
This form of repurchase agreement was not adopted by this Bank
until it became advised that a repurchase agreement in some form was in
use between all other Federal Reserve Banks and their member banks, and
until it was advised (informally) that the Internal Revenue Department
had expressed the opinion that this form of agreement did not require
revenue stamps to be affixed.
This Bank does not permit the use of a repurchase agreement
in the case of bankers acceptances bought by it, although such acceptances might be included in the bills and notes offered to us by member
banks for discount under the repurchase agreement; neither...is this repurchase. -i-eement used with member banks or others in connection with
Goverruil
vel
any character.
,Very
GJS-C
truly yours,
FEDERAL RESERVE BOARD,
L
WASHINGTON
X-3g55
October 11, 1923.
SUBJECT:
Re-purchase by Federal Reserve Lanks of Securities
and bankers, Acceptances under so-called re-purchase
agreemant
Dear Sir:
Certain questions have arisen as to the propriety
and legality of the practice engaged in by the Feder
al Reserve Banks in puiaathg Government secur
ities and acceptances
from member and nenmpmter banks, and stock, bond
and acceptance brokers, under agreements providing that the
sellers of
these securities or acceptances will re-purchase
the sane from
the Federal Rase-ve Banks within a specified
period of time.
In considering these questiJns it is very
desirable that the
Board have before it copies of the agreements used
by the
Federal Reserve Banks in order that it may be prope
rly informed
as to the details of the transactions. You are reque
sted,
therefore, to Iurnish the Board with a form of any such
repurchase agreement which your bank is now using or
which it
may have used he:.'etofo:oe.
Very truly yours,
Walter L. Eddy,
Secretary.
TO GOVERNORS OF F.R. BANKS
0
•
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS 0 FICIAL CORRESPONDENCE TO
THE F DERAL RESERVE BOARD
October 11, 1923.
3 '
r
Letter to all
•"*.'
.Certain questions have arisen as to the propriety
and legality of the practice angac;ed in by the Federal reserve banks in purchasing Government securities and acceptances from member and nonmember bans, and stock, bond and
acceptance brokers, under agreements proviaing that the
sellers of these securities or acceptances will re-purchase
the same from the Federal reserve banks within a specified
period of time. In considering these questions it is very
desirable that the Board have before it copies of the agreements used by the Federal reserve banks in order thPt it
may be properly informed as to the details of the transactions. You are requestel, therefore, to furnish the Board
with a form of any such re.vurchase agreement which your
bank is nom using or which it may have used heretofore.
Yours very truly,
Walter L. Eddy
Secretary
SIBJECT: Re-purchase by F.R.Banks of Securities and Bankers'
Acceptances under so-called Re-purchase agreement.
FEDERAL RESERVE BANK
OF NEW YORK
October 11, 1925
Walter L. Eddy, Esq.,
Secretary, Federal Reserve Board,
Washington, D. C.
Dear Mr. Eddy:
Many thanks for your confidential letter of October 10,
enclosing, at the request of Miss Parker of the General Files,
copy of confidential memorandum of Mr. Wyatt, General Counsel, to
the Governor, with reference to purchases of Government securities
and bankers' acceptances by Federal reserve banks under so-called
repurchase agreements, which I am indeed glad to have.
Very truly yours,
E. R. Kenzel,
Deputy Governor.
\\I
Ooteber 10, 19214
CONFIDENTIAL
1. ierIZOil Deputy Governor,
,
Federal J: escrve Sank,
.
,
New Yerk, N. Y.
Dear ars
In response to the telcphone request
of !Ass Parker of the General Files, there is
enclosed a copy of to confideatial :Ainaorundtun,
by Lir. Wyatt, General Counsel, to the Governor
with reference to purchales of Government Se*
c4rities and banXers/ acdeptances by Federal Reserve blanks under so-called re-purchase aiTeomoats.
Very truly yours,
,alter L. ddy,
LJeeretary.
(inclosure)
rm. 1'4'0
•
tig
e Correspentence
To
Mr. Eddy-Se_cretarY
From
FEDERAL RESERVE
BOARD
W. Wyatt- General Counsel.
oe
Dee
October 10 1923.
Subject:_ Transmis_ston of copi es _of _
opinion on "'Repurchase Agreements"
to GovernOra of-all Filderal r3serste_bmka
2--8405
In your namoranduala of October,9th
ransmitting a copy
of the poogram for the G.vernors' Conference
as submitted to
the Board by the Secretary of that confrence, you suggest
that a copy of nv 0 inion on the sub:eot of "Eepurchase Agreements", Nhich is listed for discussion as Topic F, should be
sent to the Governor of each ITedaral reserve bank, and you
inquire whether there is any reason why this; anould Aot be
done.
It is my understandin
that the B)ard ordered copies
of this opinion sent to the Governors of all federal reserve
banks at the sane time that it ordered copies sent to the
members of the Federal Advisory Council.
If this has not
been dons, I think it dhould be done immediately.
VT7 OMC
Form N(
e CorresVience
To
__Yr, 7Iatt
FEDERAL RESERVE
BOARD
•
0
11 Qatober .9 19P3
4
Subject:
From__Mrddyi
2-fi4145
For y)ur own confidential information, there is attached copy of program
for the Governors' CDnforonce as submitted to thu 3oard by the r;ecrotary of
that conference.
I want to call your attention particularly to item "F"
in which reference is made to an opinion rendered by you under date of
Our records do not shoa that a copy of the
August 18th, our index X-3317,
()Pinion in question was sent to the Governors of all Federal reserve banks,
and as the matter is one which is to be discussed at the Governors' Conf-,rence
it occurs to me that a copy of the opinion should be sent to all :;overnors
at this time in order that they may be familiar with it before coming to
Washington.
Is there any reason why tills should not be clrie?
Form No.
Of
0 4r
respçrnaence
Chairman, Law Committee
FEDERAL RESERVE
BOARD
,7)
144
WWI146 au
Date_Auguat
Subject:
3—S496
At the meeting of the Federal Reserve Board this morning, the
attached memorandum from General Counsel datedgust 18, 193, on the
subject "Purchase of Government Securities and BaakeiST7Cceptances by
Federal Reserve banks under so-called Repurchase Agreements", was referhe memorandum is later to be
red to the Law Committee for revision.
referred to the Federal Advisory Council and the Conferences of the
Governors and Chairmen of the Federal Reserve banks.
Form No.
•c
cel- orr s
;
FEDF RAL RF_S
' BOAR
VE
Date.
b
t
.lV
V
Subject:
Mr.iliar
• To
e-
Mr. lioxt on
From
V
7 21
4
Governor Crissinger has ordered that the attached memorandum from
General Counsel, subject, "Purchase of Government Securities and Bankers' Acceptances by Federal Reserve Banks under, so-called Repurchase
Agreementsil,_be docketed for the meting tomorraiwith a view of referring diMe to the Federal Advisory Council, and desires that you read
the memorandum of Counsel before tomorrow's meeting.
r
/..1(
,L4)
ttl
• s../uv's
I.
•
CONFIDENTIAL
OFFICE COREESPONDENCE
To
Governor Crissinger
From
Mr. Wyatt, General Counsel.
COPY
X-3g17
Date,
August lg, 1923.
Subject: Purchase of Government
Securities and Bankers' Acceptances by Federal Reserve
Banks under so-called Repurchase AEreements.
Question has been raised as to the propriety of the practice
engaged in by tqe Federal reserve banks of purchasing Government securities and bankers acceptanees from member and nonmember banks, and stock,
bond and acceptance brokers, under agreements providing that the sellers
of these securities or acceptances will repurchase the same from the
Fedel
4a1 reserve banks within a specified period of time.
The details of such transactions vary, but it appears
that in all cases United States Government securities or bankers' acceptances are transferred to the Federal reserve bank
at a certain agreed price while at the same time an agreement
is entered into obligating or permitting the seller of the
securities or acceptances to repurchase the same within a. certain period. It is sometimes provided that the Federal reserve
banks shall have the right to require the seller to repurchase
the securities or acceptances at any time within this period
upon giving a certain number of days' written notice. The
Federal reserve bank charges interest for the period during
which it holds the securities or acceptances, and this interest is sometimes computed in advance and sometimes when the
resale is effected. It is also provided in some of these
agreements that the seller Shall keep on deposit with the Federal reserve bank additional securities sufficient to maintain
a margin of safety, based upon a ratio of $120 to each $100
of the difference between the par value of the securities purchased and the market value thereof.
The Comptroller's Office has ruled that national
banks which have sold securities to Federal reserve banks under
such agreements shall consider the transactions as borrowings of
money and shall carry them on their books accordingly. On the
contrary, the Federal Reserve Board has held in connection with
the reports of member State banks and trust companies that such
a transaction is not to be considered as a borrowing but should
be included in a special item on the report as securities sold
under repurchase agreements. You have requested the opinion of
this office as to the true nature of such transacticns, i.e.,
whether they constitute purchases on the open market by Federal
Reserve banks as authorized by Section 14 of the Federal Reserve
Act or merely loans secured by the deposit of securities or acaeptances as collateral.
.
4
1
-2-
X-3817
In my opinion, a transaction ;hereby securities or acceptances
are sold to a Federal Reserve bank under an agreement obligating the
seller to repurchase the same on or before a_ certain date is in legal
effect merely a loan secured by collateral, and not a sale; and Federal
reserve banks have no legal authority to participate in such a transaction. Where the agreement merely permits, but does not obligate, the
seller to repurchase the securities or acceptances, no universal rule
can be laid do-Nn; but it is believed that even in these cases the transactions would generally be construed by a coart as loans secured by
collateral. The reasons upon which my opinion is based are stated below.
GENETIL PRINCIPLES
In construing an agreement such as that described above, a court
would be guided by the intention of the parties as far as it can be ascertained from the agreement itself and the surrounding circumstances. For
this purpose it is settled that parol evidence will be admitted to Show
the facts and circumstances attending the execution of the agreement. The
court will look to the substance of the transaction and will not be controlled by the form which the agreement may happen to have. The actual
intent of the parties will be the controlling factor. Where there is a
contract of sale and a contemporaneous aueement to resell at a certain
time the two abreements will be construed together in the endeavor to
ascertain the true intention of the contracting parties. In 5 Ruling
Case Law, p. 59, it is said:
"Sometimes a. bill of sale intended as a security
for money lent is accompanied by the execution of a
separate instrument of defeasance, by the terms of
Which, on the repayment of the loan at a certain time,
the bill to be surrendered to the vendor. In such a
case the two instruments must be construed together
and constitute a mortgage."
In discussing the distinction between a conditional sale and a
chattel mortgage 11 Corpus Juris at page 412, states as follows:
"Intention of the parties- Whether a transaction
constitutes a chattel mortgage or a conditional sale
ultimately depends on the intention of the parties,
which must be ascertained from their conduct and
the attendant circumstances, as well as from the
terms of the agreement. Further, the intention
must be collected from the entire transaction and
not from any particular feature of it, and from the
actual agreement of the parties and not from their
characterization of it, although the construction
placed on the contract by the parties is properly
considered. The form of the instrument is of little
importance. A contract of conditional sale will not
be regarded as a Chattel mortgage merely because
it is recorded as such."
-3-
X-3817
With regard to the specific provisions of the contract idaidh
indicate the intention of the parties as to the transaction, it is
further stated in 11 Corpus Juris, at page 413, as follows:
"Conditions Permitting Repurchase.
A bill of sale
with an agreement Permitting repurchase may constitute either
a chattel mortgage or a conditional sale, its character depending on the surrounding circumstances and the intention of the
parties. The fact that a bill of sale contains an agreement
to resell the property to the seller at a fixed price or con-.
fers on him an option to repurchase it does not, in itself,
establish that the transaction is a mortgage, especially
when there is no debt to be secured and no obligation to repay..
But the transfer may be shon to be a mortgage by evidence
that the vendorls obligation continued, that he bound himself
to pay interest, that the bill of sale was given to secure
a loan, or that the amount of consideration was inadequate
as a purchase price,"
From this statement of the law it is obvious
that the specific
provisions of a particular contract must be
known in order to determine
whether or not a conditional sale or a loan
in the nature of a. dhattel
mortgage is intended. This question turns
upon the provisions of the
particular contract and, therefore, an examination of
each agreement
entered into by the Federal reserve banks would be necessary for
a
definite opinion as to the effect of that particular agreement.
There
are, however, certain of these agreements which classif themselves
y
very readily either as sales on condition
or loans secured by chattel
mortgage or pledges.
COMMON CHARACTERISTICS OF LOANS
There are several features found in many of the repurchase agreements of Federal Reserve banks which indicate that loans rather than
conditional sales are intended. One of the most important of these is the
stipulation that additional securities shall be deposited by the seller
withthe Federal reserve bank to maintain a certain margin over and above
the market value of the securities. If the parties intended a sale
there would be no necessity for such a provision. This is
a clause ,hich
is usually found in connection with chattel mortgages, pledges or other
forms of loans secured by collateral; in such cases the provision is
very desirable. The purpose of the provision is plainly
to protect the
Federal reserve bank from any possible loss by reason
of fluctuation
in the value of the securities or acceptances
held by it as security
for a loan.
-4-
x-3817
Another important characteristic of a loan is present When it
is provided that the Federal reserve bank nay sell at a public or
private sale the securities or acceptances upon which it has advanced
money, in case the so-called seller fails to comply with the
agreement
of repurchase and to buy back the securities or acceptances at the
time specified. This also is a clause which is usually found in all
forms of loan agreements but for which there can be no possible need
in a contract of sale, even though such caatract reserves to the seller
the privilege of repurchasing within a. certain time. If these securities or acceptances are really owned by the Federal reserve bank it
would be entirely unnecessary to go through the form of a sale in
order to transfer the title thereto to the Federal reserve bank, because it already has title; and if it is desired by the Federal reserve bank to have someone else purchase them, the Federal reserve
bank, being the owner of the securities or acceptances, may make such
sale in the ordinary manner and it would be entirely superfluous to
provide for this kind of a sale in the agreement. But if the Federal
reserve bank does not, as a matter of fact, take absolute title to
the securities or acceptances, a provision for sale in case of default is necessary in order that the Federal reserve bank, or any
other party purchasing at such sale, may acquire a clear title.
The fact that the Federal reserve banks charge interest on
such transactions, and that this interest is computed in the sane way
as in the case of any ordinary loan is a. very strong factor in evidencing the intention of the parties to this agreement in reality to
negotiate a loan, although in form the transaction is an absolute
sale with a right to repurchase reserved to the seller. In the case
of an actual sale with right to repurchase there probably would be some
form of fee or commission provided for to compensate the Federal reserve bank for its services, but it is unlikely that this fee or commission would take the form of interest and be computed in the same
manner as interest, unless the parties were attempting to consummate
a loan rather than a sale.
TWO CLASSES OF REPURCHASE AGREEMENTS.
Transactions of the kind under consideration may be divided into
two general classes (1): Those in which the seller is obligated to repurchase the securities and acceptances on or before a certain specified date; and (2) those in which the seller is given the privilege
of repurchasing if he so desires. In the first of these classes, the
nature of the transactions seems entirely clear, but the proper construction of the second class of transactions depends largely on the
terms of each particular agreement.
SELLER OBLIGATED TO REPURCHASE.
Where the so-called seller has not only a right or privilege
to repurchase, but is absolutely required to repurchase by the terms of
the agreement, this is conclusive of the intention of the parties to
40%
ip
411NO
•
41041
-5-
X-317
effect a loan secured by the deposit of securities or acceptances
as collateral. Where the agreement entered into by the
Federal reserve bank, therefore, contnns a provision obligating
the seller
to repurchase the securities or acceptances within a certain
specified period, or at the option of the Federal reserve bank upon
a certain number of days written notice, there is no question
but
that the transaction is a loan, although in form a conditional
sale. This position is sustained by the authorities.
In the case of Robinson v. Farrelly, 16 Ala., 472, the
Court in discussing the nature of a transaction similar to that
under consideration states as follows;
"The nature of a sale, with the right to repurchase for a given sum, and within a specified time,
is a conveyance of the title to the purchaser; he is
the owner of the property, but the vendor has the right
to repurchase if he sees fit; no obligation rests on
him to do so, it is a mere matter of volition, Whether
he will or not. If he declines to repurchase, he is
not bound to refund the money, and the purchaser has no
cause of action against him because he does not see fit
to claim his privilege. If the purchaser retain the right
to demand the money of the vendor, notwithstanding his
purchase, a debt is than due from the vendor to him, and
the existence of this debt within itself shows that the
conveyance is a mere security for its payment."
In the case of Cake v. Shull, (N.J.) 16 Atl. 434, the court
made the following statement:
"The right of a court of equity to declare a deed
or bill of sale, which is absolute on its face, to be a
mortgage, is clear, as is also the competency of parol
evidence to prove the fact. The question turns upon the
actual intention of the parties at the time of the transaction. Crane v. Decamp, 21 N.J. Eq. 414. If that intention was that the instrument should constitute security
for the payment of money, or the performance or non-performance of any other act, then it is deemed a. mortgage;
but, if a real sale was intended, then it takes effect
according to its terms, even though a contemporaneous
right or privilege to purchase back the property sold
was contracted for by the vendor. Gassert v. Book, (Mont.)
19 Pac. i.ep
Sl.; Conway's Extr v. Alexander, 7 Crandh
21S; notes to Thornbraugh v. Baker, 2 Lead. Cas. Eq. 1030.
An obligation to repurchase, or any other duty resting
on the vendor by the performance of which the property
was to revert to him, could ordinarily be conclusive
evidence of a mortgage, While the absence of such obligation or duty, either expressed or implied, would be
indicative of a sale."
4INO
-6-
x-3s17
SELLER WITH CPTI:N TO REITRCHASE.
Where the agreement provides that the seller shall have the
right or privilege of repuzchasing within a certain specified period,
but there is no obligation upon him to do so, there may be some
Question as to the intention of the parties; it is sometimes uncertain valether such a transaction should properly be construed as a sale
or a loan. In such cases the courts have, in endeavoring to ascertain the true intention of the parties, reached differant conclusions, depending upon the purpose of the transaction, the result
to be accomplihed, and the other surrounding circumstances. As has
been heretofore stated, each agreement must be construed according
to its own particular terms and it is difficult to lay down any
general rule which will be applicable to all cases. The fact that
most of the repurchase agreements entered into by Federal reserve
banks provide for the payment or deduction of interest is a strong
indication of an intention to effect a loan rather than a sale. Further indication of such an intention is sometimes found in the payment of a price other than the market value for the securities or
acceptances and in the provision for deposit of additional collateral. In view of these facts, I believe that it may
be fairly said
that most if not all sale agreements made by Federal reserve banks reserving to the seller the privilege of repurchasing are, properly
construed, loans and not sal es.
The cases hereafter cited show under what circumstances
agreements reserving to the seller merely the privilege to repurchase are to be construed as loans secured by collateral although
the transactions are in form conditional sales.
In the case of Dickinson v. Oliver, g9 N.Y. Supp., 52 (Affirmed
in g3 N.E. 144), where a bill of sale was given for certain property
together with an a.greement permitting the seller to repurchase within a. certain time, the transaction was held to constitute a loan in
the nature of a chattel mortgage and not a sale with the right of
repurchase. The court quotes with approval the following head
note from the case of Susman v. Whyard, 114.9 N.Y. 127, 143 N.E. 413;
"Where the provisions of an instrument which is
in form an absolute bill of sale, taken in connection with
the surrounding facts, indicate that the parties contemplated
a loan of money and a sale of the property, upon the condition, however, that the property should be returned upon
the payment of the money so loaned, the instrument is in
effect a. chattel mortgage, and the fact that it employs
the term !resalel will not change its meaning when no other
sum than the amount of the loan is mentioned or contemplated as the price of such resale."
-7-
X-3317
In the case of °linen v. Walker, (La.) 12 South. g72,
an agreement of sale permitted the seller to buy back timber purchased at any time within six months at cost phis eight per
cent interest, the repurchaser to stand any loss incurred in the meantime.
The court held that this agreement, in the light of all the surrounding circumstances, was in effect merely a transaction giving security
for a loan and could not be construed as a sale.
In Sparks v. Robinson, (Ark) 515, S.W. 46o, Which was a
case involving the usury lams, an absolute bill of sale, which purported to sell certain property at a price far less than the market
value thereof, was construed as a cover for a loan. The court
said that "The law shells the covering and extracts the kernel."
In the case of Mercantile Trust Company v. Kastor, (Ill.)
112 ILE. 933, the Trust Company, Which had no power to make loans
entered into a contract purporting to be a sale by a certain corporation of its accounts receivable to the Trust Company. The Trust .
Company was by the terms of this agreement to pay no more than 77
of the value of the said accounts. The corporation and the defendant guaranteed to pay these accounts if they were not paid at maturity. On a certain account which was unpaid the Trust Company brought
suit against the defendant an this guaranty. It was held that the
transaction constituted not a sale, but merely a loan with the accounts receivable assigned to the Trust Company as security,
and the Trust Company was permitted to recover nothing because the
contract was ultra vires and therefore void.
In the case of Home Bond Company v. McChesney, 239 U.S.
563, the Supreme Court of the United States approved the findings
of a special master holding that a transaction very similar in its
terms to that in the Kastor case, which is discussed above, was
a mere loan with collateral security, and not a sale. The Supreme
Court quotes with approval the language of the United States District Court as follows:
"In so far as the contracts in question
here used words fit for a contract of purchase,
they are mere shams and devices to cover loans
of money at usurious rates of interest."
ilNer
)
-g-
X-3g17
ORIGIN OF PBACTICE
That these transactions are in substance loans rather than
bona fide purchases of securities on the open market
is further confirmed by a consideration of the oribin of the practice.
The practice of the Federal Reserve banks in purcha
sing Government securities and bankers' acceptances
under re-sale agreements originated
in November, 1917, When demendb for
accomodation upon the Federal reserve
banks were very heavy and the Govern
mont was floating large issues of
Liberty bonds.
On December 1, 1917, the stamp tax on promissory notes
was to become effective and this would
have been a very heavy expense
upon member banks in obtaining funds
from Federal reserve banks upon
their fifteen day collateral notes under
Section 13 of the Act. The
Federal Reserve Board, therefore,
suggested that in order to avoid the
payment of this stamp tax member banks
might obtain short time advances
from Federal reserve banks by redisc
ounting eligible commercial paper
of longer maturities under re-p
urchase agreements. The Board pointed
out that interest might be Charge
d only for the period covered by the
agreement, that is, from the date
of discount to the date of repurchase,
and that the interest might be
adjusted in advance or at the time of the
re-sale. The suggestion
of the Board was adopted and the Federal reserve banks began purchasing paper
from m6r.sier banks under repurchase
agreements as a substitute for the
fifteen day collateral notes of member banks. Notes secured by
Liberty Bonds or United States certificates of indebtedness were
subsequently exempted from the stamp tax
and thereupon at least
one of the Federal reserve banks (Richmond) discontinued this practice. Other
Federal reserve banks, (notably New York)
have not discontinued it,
however, but on the contrary have extended it
by entering into transa
ctions of this kind not only with their member
banks but also with non-member banks
and stock, bond, and acceptance
brokers.
It is clear, therefore, that these transactions originated as
loans (presumably under the
authority to make direct loans to member
banks) and the practice has
simply grown and spread until it has gone
far beyond the original
purpose of the Board's ruling, and has been
taken advantage of by the Federa
l reserve banks as a justification
for making direct loans
to non-member banks and to brokers - parties
to Whom the Federal Reserv
e Act never intended that Federal reserve
banks should extend credit
in any way without the intervention of a
member bank.
.CONCLUSIONS OF LAW.
.When the transactions between the Federal reserv bank and the.
e
various member and non-member banks, and other corporations theref
ore,
,
are considered in the light of all the surrou
nding circumstances it seers
clear that under the principles announced by the courts, most
if not all
_9_
of these transactions should
of securities or acceptances
right to repurchase reserved
form sales, are in substancp
X-317
be considered loans secured by the deposit
as collatercl, instead of sales with the
to the seller. Ap agreements, though in
loans secured by The pledge of collateral.
The transaction described being a loan secu7ed by collat
eral,
instead of a sale Which it purports to be, Federal rc;st)rv
e banks have
no power to engage in such txansations and such aueen
ents on the part
of these banks are entirely ultra vires, Fedora
l reserve banks have no
power to make loans direct to the person or corpo
raien primarily liable
under any conditions, except that they Irv)1?-e advanc
es to their member
banks upon promissory notes for a period
not exr;3eding 15 days vd.en properly secured in accordance with Section
13 of the Federal Reserve Act.
.
Advances under repurchase agreements such as described above, howeve
r,
can not be considered advances upon promis
sory notes, because the debt
in such cases is not evidenced by notes of alv kind. Federa reserve banks,
l
therefore, can not in my opinion, make advances even to member banks under
repurchase agreements.
POLICY
This subject has been discussed above largely as a question of
general law, and I have not discussed the
effect of its application to
the Federal reserve banks. I think,
however, it is perfectly manifest
that the application of these conclu
sions of low to the operations of the
Federal reserve banks will lead to a much closer
adherence to the fundamental purposes and principles of the Federa
l Reserve Act than exists at
the present time. The original Federa
l Reserve Act gave the Federal reserve
banks no power to make direct loans even to
their member banks.
The power to make direct loans to member banks on their fifteen
day notes was granted on the recommendati
on of the Federal Reserve
Board as a means of enabling Federal reserv
e banks to extend credit to
their member banks for short periods of time on the securi
ty of paper
eligible for rediscount. An amendment to the
Act granting this power
to Federal reserve banks was recommended by the Federa
l aserve Board
in 1916 when little use was being
made of the rediscount facilities of
the Federal reserve banks and it was hoped
that this would induce the
member banks to malre more use of the system
. The Board's proposed anendnent, however, was not acted upon
before it became evident that this
country might be drawn into
the world-war and in order that the banks
of the country might be in positi
on to facilitate Government financing
in such an event, the Board made
a further suggestion that tr. proposed
fifteen-day collateral notes of member
banks might be node eligible When
secured by bonds and notes of the
United States as well as When secured
by paper eligible for redisc
ount.
-10-
x-3g17
It was never contemplated by Congress that the Federal reserve banks should make direct loans to non-member banks nor to stock,
bond and acceptance brokers or other individuals, partnerships or
corporations which ordinarily would seek such accommodations from member
banks. The practice which has grown up in the Federal reserve banks
of buying bonds and bankers' acceptances under so-called "repurchase
agreements" amounts to nothing more nor less than the making of direct
loans on the security of such bonds or acceptances; and the making of
such loans to parties other than member banks is manifestly inconsistent with the purposes of the Act in that it enables non-member banks and
stock, bond and acceptance brokers to tap the resources of the Federal
reserve banks directly and without the intervention of a member bank.
As stated above, I am of the opinion that these traasactions
are clearly ultra vires as to Federal reserve banks and it is respectfully recomnended that the Board so rule.
Respectfully,
(Signed) Walter Wyatt,
General Counsel.
Correspondence
- Governor Crissinger
From_
_ eie
-,17yett,
nered
°
1)c
FEDERAL RESERVE
OARD
goo >( 3 E/
Date
Aug. 18,1923
Subject: Purchase of GbVernmght -Securities and Bankers' Acceptances by Federal Resdrve
Banks under so-called Repurchase Agreements.
`
)
e
CIlea_attachederiessore.ndedressed to you by i;ir. lead)
te (questions) the propriettepractice engaged in by the Federal
reserve banks of purchasing Government securities and bankers'
acceptances from member and nonmember banks, and stock, bond and
acceptance brokers, under agreements providing that the sellers
of these securities or acceptances will re'eurchase the same from
the Federal reserve bunks within a specified period of time.
The details of such transactions vary, but it appears
that in all cases United States Government securities or bankers' acceptances are -transferred to the Federal reserve bank
at a certain agreed price While at the same time an agreement
is entered into obligating cr permitting the seller of the
securities or acceptances to repurchase the same within a certain period. It is sometimprovided that the Federal reserve
banks shall have the right to require the seller to repurchase
the securities or acceptances at any time within this period
upon giving a certain number of days? written notice. The
Federal reserve bank charges interest for the period during
which it holds the securities or acceptances, and this interest is sometimes computed in advance and sosetimee when the
resale is effected. It is also provided in some of these
agreements that the seller dean keep on de2csit with the Federal reserve bank additional securities sufficient to maintain
a margin of safety, based upon e. ratic of $120 to each $100
of the difference between the par value of the securities -ourchased and the market value thereof.
The Comptroller's Office has ruled that national
banks which have sold securities to Federal reserve banks under
such agreements shall consider the transactions as borrowings of
money and shall curry them on their books accordingly. On the
contrary, the Federal Reserve Board has held in connection with
the reports of member State banks and trust companies that such
a transaction is not to be considered as a borrowing but should
be included in a special iteal on the report as securities
sold
-ender repurchase agreements. You have requested the opinion
of
this office as to the true nature of such transactions,
i.e.,
whether they constitute purchases on the open market
by Federal
reserve banks as authorized by Section 14 of the Federal Eeserve
Act or eaeroly loans secured by the deposit of securities
or acceptances as collateral.
2-8496
In my opinion, a transaction wherdb
7 securities or acceptances
ere sold to a Federal rese
rve bank under an agreement obligating
the seller to
repurchase the sane on or before
a certain date is in legal effect mere
ly a
loan secured by collateral, and not
a sale, and Federal reserve banks
have no
legal authority to participate in
such a transaction. Where the agreemen
t
.
merely permits, but does not obli
gate, the seller to repurchase
the securities
or acceptances, no universal rule
can be laid down; but it is believed
that
even in these cases the trensactions
would generally be' construed, by a cou
rt
as lcans secured by collateral. The
reaeons upon Which my opin
ion
based are stated below.
Gr2sru,T, RI NCIPLES t-In constreing an agreement such as that
described -love, a court
would be guided bythe intention of the part
ies as far as it can be asce
rtained from the agreement itself and the
surrounding circumEtances. For
this
purpose it is settled that parol evidence
sill be admitted to show
the facts
and circrmstances attadding the execution
of the agreement. The cour
t will
look to the substance of the transaction lnd
will not be controlled by
the
form which the agreement may happen to hav
e. The actual intent of
the parties will be the controlling factor. Where
there is a contract of
sale and a
contemporaneous agreement to resell at
a certain time the two
agreements
willbe construed together in the endeavor
to ascertain the true
intention of
the contracting parties. In 5 Ruling Case
Law, p. 589s it is said
:
"Sometimee a bill of sale intended
as a security
for money lent is accompanied by the
execution of a separate
instrument of defeasance, by the
terms of which, on the
repayment of t- e loan at a certai
e
n tine, the bill to be
surrendered to the vendor. In
such a case the two inst
ruments must be construed together and
constitute a mDrtga-3."
In discussing he distinction between
a conditional sale and
a
chattel nort7aee 11 Corpus Jtrie at page 412,
states as follows:
"Intention of the parties. Whet
her a transaction
constitutes a c-.attel mortgage
or a conditional sale
ultinetely depends on the
intention of the parties,
rjichmuet be ascertained from
their conduct and
the attendant circumstances, as wel
l as from the
terms of the agreemebt. Further,
the intention
must be collected from the entire
transaction and
not from any particular feature of
it, and from the
actual agreement of the parties and
not from their
characterization of it, alth
aul-h the construction
placed on the contract by the
parties is properly
considered. The form of the
instrument is of little
inroort4ncet
A contract of conditional
sale will not
be regarded as a chattel rrortgage
merely becmise
it is recorded as such."
Wtth regard to the specific provisions of the contract which indicate
the intention of the parties as to the transaction, it is further stated
in 11 Corpus Juris t at page 413, as folloNs:
"Conlitions permitting Repurchase. A, bill of sale
with an aRreemeLt permitting repurchase may constitute either
a chattel torte-Age or a conditional sale, its character dependine: on the surroun'Ung circumstances and the intention of the
partiea. The fact that a bill of sale contains an agreement
to resell the property to the seller at a fixed price or confers on him an option to repurchase it does not, in itself,
establish that the transaction is a mortgage, especially
when there is no debt to be secured and no Obligation to repay.
But the transfer may be shown to be a mortgaze by evidence
that the vendors Obligation cootinued, that he bound himself
to pay interest, that the bill of sale was .,iven to secure
a loan, or that the unount of co _sideration was inadequate
as a purchase price."
From this statement of the law it is obvious that the specifi
c
provisions of a part'cular contract must be known in order
to determine
whether or not a conditional sale or a loan in the
nature of a chattel
mortga.se s intended. This question turns upon the provisi
ons of the
particular contract and, therefore, an examination
of each agreement
entersd into by the Federal reserve batiks would be necessa
ry for a
definite opinion as to the effect of that particu
lar agreement. There
are, however, certain of theSe agreements which
classify the-r.selves
very readily either b.3 sales on condition or loans
secured by chattel
mortaae or pledges.
g)I.YoN
,
CHARACTERISTICS OF LOAM.
There are several features found in many of the
repurchase agreements of Federal reserve banks which indicate :net
loens rather than
conditionel sales are intended. One of the most ieepo
.tant,of these is the
stipulation that additional securities shall be
deposited by the seller
with the Federal reserve bank to maintain a certain
margin over and above
the market value of the securities. If the
parties intended a sale
there would be no necessity for such a provisi
on. This is kv cla Ise which
,
,
is usually found in connection with chattel
mortgages, plethzes or other
forms of loans secured by collateral, in such
cases the pre-ision is
vary desirable. The purpose of the provizi
on is plainly to protect the
Federal reserve bank from any possibl
e loss by reason of fluctuation
in the value of the securities or
acceptances held by it as security
for a loan.
Another important characteristic of a
loan is present when it
is .
.,rovided that the Federal reserve bank
may sell at a public or
private sale the securities or acceictanc
es upon which it has advanced
money, in case the so-called seller fail
s to comply with the agreement
of repurchase and to buy back the securiti
es or acceptances at the
time specified. This also is a clause whic
h is usually found in all
forms of loan agreements but for which
there can be no possible need
in a contract of sale, even though such
contract reserves to the seller
the privilege of repurchasing within a
certain time'. If these securities or acceptances are really owned
by the Federal reserve bank it
wculd be entirely unnecessary to go thro
ugh the form of a sale in
order to transfer the title thereto to
the Federal reserve bank, because it already has title; and if it is
desired by the Federal reserve bank to have someone else purc
hase them, the Federal reserve
banl-, being the owns!' of the securities
or acceetances, may make such
sale in the ordinary manner and it woul
d be entirely superfluous to
grovide for this kind of a sale in te
agreement. But if the Federal
reserve bank does not, as a matter dr
fact, take absolute title to
the securities or acceptances, a provisio
n for sale in case of default is necessary in order that the Fede
ral reserve bank, or any
other party purchasing at sudh sale, may
acquire a clear title.
The fact that the Iederal rese
rve banks charge interest on
such transactions, and that this interest
is computed in the same way
as in the case of any ordinary loan is
a very stron: factor in evidencing the intention of the parties to this
agreement in reality to
negotiate a loan, although in form
the transaction is an absolute
sale with a right to repurchase reserved
to the seller. In the case
of an actual sale with right to repurcha
se there probably would be some
form of fee or commission provided for
to comrensate the Federal reserve bank for its services, but it is
unlikely that this fee or commission would tale the form of interest
and be computed in the same
manner as interest, unless the parties
were attempting to consuemate
a loan rather than a sale.
TWO CLASSES OF REPURCHASE AGRE
agrTS.
Transactions of the kind under
consideration may be divided into
ten general classes (1): Those in whic
h the seller is obligated to repurchase the securities and acceptan
ces on or before a certain spec
ified date; and (2) those in which the
seller is given the privilege
of repurchasing if he so desires. In
the first of these classes, the
nature of the transactions seems enti
rely clear, but the proper construction of the second class of
transactions depends largely on the
terms of each particular agreement.
SELLYR OBLIGATED TO REPU
RCHASE.
Where the sc-called seller
has not only a right or privilege
to repurchase, but is absolutely
required to repurchase by the termsof
the agreement, this is cbnclusive
of the intention of the parties to
Of
5
.
effect a loan secured 1: the deposit of securities or acceptances
7
as collateral. Where the agreemeat entered into by the Federal reserve bank, therefore, contains a provision obligating the seller
to repurchase the securities or acceptances within a certain
specified pariod,or at the option of the Federal reserve bank upon
a certain number of days written notice lthers is no question but
that the transaction is a loan, although in form a conditional
sale. This position is sustained by the authorities.
In the case of Robinson v. Ferrallz, 16 Ala., 472, the
6ourt in discussing the nature of a transaction similar to that
under consideratien states as follows:
"The nature of a sale, with the right to repurchase for a given cum, and within a specified time,
Is a conveyance of the title to the purchaser; he is
the owner of the property, but the vendor has the ri6ht
to repurchase if he seas fit; no obligation rests
on
him to do so, it is a mere matter of volition, whether
he will or not. If he declines to repurchase, he
is
not bound to refund the money, and the purchaser has
no
cause of action against him because he does not
see fit
to claim his privilege. If the purchaser retain
the riht
to demand the money of the vendor, notwithstand
ing his
purchase. a debt is then due from the vendor
to him, and
the existence of this debt within itself shows
that the
conveyance is a mere security for its payment."
In the case of Cake v. aul, (1:.J.) 16
Ltl. 434, the court
made the follcwine statement:
"The right of a court of equity to declar
e a deed
or bill of sale, ledieh de absolute on its face,
to be a
mortgage, is clear, as is also the competency
of parol
evidence to prove tha fact. The question turns
upon the
actual intention of the parties at the time
of the transaction. Crane v. Ptecia, 21 N.J. Eq. 414.
If that intention was that the instruuent shlould constitute
security
for the payment of money, or the .performance
or non-performance of any other act, then it is deemed
a mortgage;
but, if a real sale was intended, then it
takes effect
according to its terms, even theuh a ccntem
poranecus
right or privilege to purchase back the
property sold
was contracted for by the vendor. Gassert
v. Bogk, (Yiont.)
19 Pac. Rep. 281; Conwayts Ext r v. Alexander,
7 Cranch,
218; notes to TiaM.i_tIMIA V. Baker, 2 Lead. Cas.
,
Eq. 1030.
An obligation to repurchase, or any other
duty resting
on the vendor by the performance of which the
property
was to revert to him, could ordinarily be
conclusive
evidence of a mortgage, while the absence of such
obligation or duty, either expressed or implied, would be
indicative cf a sale."
Page S.
SELLER WITH OPTION TO REPURChASE.
• Where the agreement provides that the seller Shall have the
'
right or privilege of repurchasirg within a certain specified
period,
but there is no obligation upon him to do so, there may be some
clueetion as to the intention of the parties; it is sometimes uncertain whether such a transaction Should properly be construed as a sale
or a loan. In such cases the courts have, in endeavoring to escertain the true intention of the parties, reached different conclusions, depending upon the PurPose; of the transettion, the result
to be accomplished, and the other surrounding circumstances. As has
been heretofore stated, each agreement must be construed according
to its own particular terms and it is difficult to lay down any
general rule whidh will be applicable to all cases. The fact that
most of the repurchase agreements entered into by Federal reserve
banks provide for the payment or deduction of interest is a strong
indication of an.intention to effect a loan rather than a sale. Further indicationt of such an intention is sometieas found. in the pay.
ment of a price other than the market value for the securities or
acceTtances and in the provision for deposit of additional collater
al. In view of these facts, I believe that it may be fairly said
that most if not all sale agreements made by Federal reserve banks reserving to the seller the privilege of repurchasing are, properly
construed, loans end not sales.
The cases hereafter cited Snow under what circumstances
agreements reserving to the seller merely the privileg
e to repurchase are to be construed as loans secured by collateral
although
the transactions are in form conditional sales.
In the case of Dickinson v. Oliver, 89 N.Y..Supp.,
52 (Affirmed
in 88 N.E, 44), where a bill of sale was given for certain
property
together with an agreement permitting the seller to
repurchase 'within a certain time, the transaction was held to constitute a
loan in
the nature of a chattel mortgage and not a sale with the right
of
repurchase. The court quotes with approval the fol1owin
6 head
note from the case of Susman v. Whyard,, 14'; N.Y. 127, 43 N.E.
413:
'
,Where the provisions of an instrume
nt which is
in form an absolute bill of sale, taken in
connection with
the surrounding facts, in4icate that the parties
contemplated
a loan of money and a sale of the property,
upon the condition,- . however, that the property should be
returned upon
the payment of the money se loaned, the
instrument is in
effect a chattel mortgage, and the fact
that it employs
the term 'resale' will not change its meaning
when no other
sum than the amount of the loan is
mentioned or contemplated az the price of such resale,"
q
,
Page 7.
In the case of OINiell v. Walker, (La.) 12 Scuth. 872,
an agreement of sale permitted the seller to buy back timber purchased at any tieae within six months at cost plus eight per cent interest, the relmrchaeer to stand any loss incurred in the meantiale.
The court held, that this agreement, in the light of all the surroundin circumstancee, was in effect merely a transaction giving security
for a loan and could not be construed as a sale.
In Searke v. Eobinsoll, (Ark)515, S. W. 460, which was a
case involving the ustry laws, an absolute bill of sale, which purported to sell certain property at a price far lass than the marlzet
value thereof, was construed as a cover for a loan. The court
said that "The law shells tee coverin, and extrects the kernel".
In the case of .ercantile Trust Cony V. Laster, (Ill.)
112 N.E. 988, the Trust Comeany, which had no power to elake loans
entered into ,
ccntract purporting to be a sale by a certain corporation of its accounts receivable to the Trust Company.
The Trust
Colepany was by the ter.es of this areament to pay no more than 77
of the value of the said accounts. Th'e corporation and the
defendant guaranteed to pay these accounts if they were not
paid at maturity. On a certain account which was unpaid the
Trust Company brought
suit against the defendant on this guaranty.'
It was held that the
transaetion constituted not a sale, but merely
a loan with the accounts receivable assigned to thc Truet Compan
y as security,
and the Trust Company was permitted to recove
r nothing because the
contract was ultra vires and therefore veld.
In the case of Home bond Coelpany
v. cChesney, 239 U.S.
568, the Supreme Court of the United States
approved the findings
of a special master holding that a transaction
very similar in its
terms to that in the Kastor case, which is
discussed eZove, was
,eere loan with collateral security, and not
a sale. The Supreme
Ceurt quotes with approval the language of
the United States ristrict Court as follows:
"In so far as the contracts in
question
here used words fit fcr a contract of
purchase,
they are mere shales and devices to
cover loans
of money at usurious rates of
interest."
ORIGIN OF PRACTICE.
That the
transactions are in eubstence loans rather than bona
fide ,purchases of securities on the open market is further
confirmed
bya consideration of tine origin of the practice.
The practice of the Federal reserve banks in purchasing Government
securities and bar-Larst acceptances under re-sale agreements originated
in November, 1917, when demands for accomeiodation upon the Federal reserve bunks were very heavy and the Governelent was floatint: large issues
of Liberty bonds. On December 1, 1917, the stamp tax on promissory notes
was to become effective and this would have been a very heavy expense
upon member banks in obtaining funds from Federal reserve banks upon
their fifteen day collateral notes unaer 6ection 13 of the lot.
The
Feral Reserve Board, therefore, suggested that in order to avoid the
payment of thie stamp tax member banks might obtain short time advance
s
from Federal' reserve banks by rediscounting eligible coremercial pper
of longer maturities under re-purchase agreeeeente. The Board pointed
out that interest might be charged only for the period covered by tile
agreement, that is, from the date of discount to the date of repurch
ase,
and that the interest might be adjusted in advance or at the time
of the
re-sale. The euggestion of the Board was adopted and the
Federal reserve banks began purchasing paper from member banks under repurch
ase
agreements as a substitute for the fifteen day collateral
notes of member banks.
Notes secured by Libert:, Bonds cr United States certificates of indebtedness were subsequently exempted from the stamp tax
and thereupon at least one of the Federal reserve banks
(Richmond) discontinued, this practice. Other Federal reserve banks, (notably New York)
have not discontinued it, however, but on the contrary have
extended it
bj entering into transactions of this kind not onl with their member
banks but also with non-member banks and stock, bond, and
acceptance
brokers.
It is clear, therefore, that these transactions origina
ted as
(presumably under the authority to make direct loans
loans
to member
bunks) and the practice has simply grown and spread until it
has gone
far beyond the original purpose of the Board's reeling, and has been
taken advantage of by the Federal reserve banks as a justifi
cation
for rvking direct loans to no -member banks and to brokers parties
to whom the Iadaral Reserve Act never intended that Federal
reserve
banks sho'eld extend credit in any way without the
intervention of
meelber bank.
COUCLUCIONS
OF
LN.7.
When the transactions between the Federal
reserve bank and the
various member and nonmember barks, and other corpora
tions, therefore,
are considered in the light of all the surrounding cirmustances
it see_s
clear that under the principles announced by the courts most
if not all
of these transactions should
of securities or acceptances
right to repurchase reserved
form sales, are in substance
be considered loans secured by the deposit
as collateral, instead of sales with the
to the seller. The agreements, though in
loans secured by the pledge of collateral.
The transaction described being a loan secured
by collateral,
instead of a sale Nhich it purports to be, Fede
ral reserve banks have
no power to engage in such transactions and such agre
ements on the part
of these banks are entirely ultra vires. Fede
ral reserve banks have no
power to make loans direct to the pers
on or corporation primarily liable
under any conditions, except that
they make advances to their member
banks upon Promissory notes for a peri
od not exceeding 15 days when properly secured in accordance with Sect
ion 13 of the Federal Reserve Act.
Advances under repurclmse agreements
such as described above, however,
can not be considered advances upon prom
issory notes, because the debt
in such cases is not evidenced by note
s of any kind. Federal reserve banks,
therefore, can not in my opinion,
make advances even to member banks under
repurchase agreements.
POLICY
This subject has been discusse
d above largely as a question of
general law, and I have not discusse
d the effect of its applicat
ion to
the Federal reserve banks. I think,
however, it is perfectly manifest
that the application of these conclusi
ons of law to the operations of
the
Federal reserve banks will lead to a much
closer adherence to the fundamental purposes and principles of the
Federal Reserve Act than exists
at
the present time. The original Federal
Reserve Act gave the Federal rese
rve
banks no power to make direct loans even
to their member banks.
The power to make direct loans
to member banks on their fifteen
day notes was granted on the recommen
ddtion of the Federal Reserve
Board as a means of enabling Federal
reserve banks to extend cred
it to
their member banks for short periods
of time on the security of pape
r
eligible for rediscount. An amendmen
t to the Act granting this powe
r
to Fe3erl rg4n, rve banks was recommended
.
by the Federal Reserve Board
in 1916 when little use was bein
g made of the redi
scount facilities of
the Federal reserve banks and it
was hoped that this
would induce the
member banks to make more use
of the s7stem. The
Board's proposed arendment, however, was not acted upon
before it became evid
ent that this
country might be drawn into the
world-war and in orde
r that the banks
of the country might be in posi
tion to facilitate
Government financing
in such an event, the Board made
a further suc7gest
ion that the proposed
fifteen-day collateral notes of
member banks might be
made eligible when
secured by bonds and notes of
the United States as
well as when secured
by paper eli7,1ble for rediscou
nt.
0,
4
10.
It was never contemplated by Congress that the Federal reserve banks should make direct loans to non-member banks nor to stock,
bond and acceptance brokers or other individuals, partnerships or corporations which ordinarily would seek such accommodations from member
The practice Which has grown up in the Federal reserve banks
banks.
of buying bonds and bankers' acceptances under so-called "repurchaae
agreements" emounts to nothing more nor less than the making of direct
loans on the security of such bonds or acceptances; and the making of
such loans to parties other than member banks is manifestly inconsistent with the purposes of the Act in that it enables nonmeuiber banks and
stock, bond and acceptance brokers to tap the resources of the Federal
reserve banks directly and without the intervention of a member bunk.
As stated above, I am of the opinion that these transactions
are clearly ultra vires as to Federal reserve banks and it is respectfully recommended that the Board so rule.
Respectfully,
/
Walter Wyatt,
General Counsel.
rd
For
ERAL RESERVE
BOARD
Corres
I
P
To Yr. Eddy
:fa. •
41.4
I'
ate_Auzust 1, 1923.
''',2 deT)•17:-
Subject:ii Z..._ e l
Bank of Kans s. C 1,y
Co. under reI1,1r!Wa
From3,-r. Van Fossen
d b.F.
nerve Trus
.
)
cment
•
,
:Atached hereto is the daily TEND telegram of the Federal Reserve Bank
of Kansas City for July 30, also copy of our yesterday's telegram to the bank,
a copy of its reeply, an a suggested telegram to be sent to ther-bank, in connection with the 4,00,O00 of U. S. securities sold by the Fe eral Reserve Bank
under repurchase a'roement.
'
It is evident that the Federal Reserve Bank has sold these securftids to
the Commerce Trust Co. of Kansas City and has received a valuable consideration
therefor, i.e., the member bank was charged c)4,000,000 in its reserve account,
Thich amount is apparently carried on the books of the Federal Reserve Bank
among miscellaneous liabilities und:r the caption "U. 5. securities sold under
Inasmuch as the securities in question are o;4nod by
repurchase agreement."
the member bank and pledged by it as collateral for state deposits, it is not
believed that the Federal Reserve Bank can properly consider them as part of
its earning assets, but that any earnings obtained by it in consegience of this
agreenLent should be considered as miscelleneous earnings.
lotirtn. 118'ler
0
1
4
TELEGRAM
a*
FEDERAL RESERVE BOARD
LEASED WIRE SERVICE
WASHINGTON
2-9434
August 1, 19216
Boardmano Kansas City
Referring your July 31 telegram, United Etates securitiesmold to
Comreroe Trust Company uniter rwparohase agreement should not be included
among earning tusets of yovr bank. Please report this transaction as
menorandum item on revers() side of balance sheet form Zit and include any
earnings dorived therefrom amone miscellaneous earnings.
EDDY
41.
Form 118
It
TELEGRAM
11
11
FEDERAL_ RESERVE BOARD
LEASED WIRE SERVICE
WASHING -T-40N
2 -- 2CS-1,
2 -2
COPY
July 31, 1923.
tac3lure, Kansas City
Referring your July 30 TEND telegram, please wire
further details regarding ,,4,000,000 securities solo under
repurchase agreement which apparently should not be included
In item 13UND.
EDDY
gdie
4141
TELEGRAM
0
0
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)
262fte
lc
RECEIVED AT WASHINGTON, D. C.,
1-ansasClity 31 439pm
311‘.. si 323
tddy
PFCEIVrr'
"ahn
the commerce
Answering wireiregarding our July 30 Tend telcgram
di- this city had obligated itself to accept and secure
trust Co -a fifteen million dollar deposit which was made yesterday with
it loiy the state of lansaa, this deposit being a part of the
old-ers bonus fund, in order to complete the necessary collateral
unia deposit the commerce '.rust Cc purchased from this bank
for A,
par four million dollars in UnitedStates securities under a
at
contract to resell these securities and this bank in turn agreed to
repilrJhase them at par within a certain time limit August 10.
.
Lnder the contract the earnings on these securities are to revert
and for that reason and due to the fact that we agreed
to this bank
to purchase the securities the item of four million dollars was
shown on form 34 under earning assets and under miscellan ous libilitie
.
00VERNI.1411 111117.0
2-11901
Boardman
6pra
•
4
11
6
Form 148
TELEGRAM
FEDERAL RESERVE BOARD
LEASED WIRE SERVICE
WASH I NGTON
July 31, 1923
McClure, Kansas City
Referring your July 30 TEND Telegram, please wite
further details regardirg $4,000,000 securities sold under
repurchase agreement which apparently should not be included
in item BUND
EDDY
:I'-9454
3)-
%,
For
.131. 9 23
7 / (3)
/ '
FEDERAL RESERVE
BOARD
e Corresp
To
4
10P
(
Ci
f
Gov. Crissinger
*
From_
ir. Smead
\5 ,
-\1
f
'hay 6, 1923.
0
Subject:Purchase by F.R.Banks ( U.S. securities a
a' NaOceptances
\
wader rëd&1& oo trao ts
'JUL 0 19'2.3
ctF- couNsE
"
At the time the proof for Form 105, Report of Condition of State Bank and
Company members, to be used for the June call was approved, vie discussed
Trust
the advisability of taking up with the Comptroller of the Currency the question
of reconciling differences between instructions issued by the Federal Reserve
Board governing the preparation of condition reports by state bank ana trust
company members and those issued by the Comptroller to National banks, especially with reference to securities sold under a repurchase agreement.
After giving the matter careful consideration it is thought that it mig)it be
:
well fox the Board to review its present policy with reference *to repurchase
agreements and to aecide whether or not it is advisable for the Federal reserve banks to continue to purchase U.S. securities and bankers' acceptances
from investment dealers and non-member banks under so-called re urahase agreements.
In November 1917, vhen demands for accommodation upon the Federal reserve banks were very heavy and the Government was floating large issues of
Liberty bonds, the Federal Reserve Board advised all Federal reserve banks
by telegram on November 30, 1917 that "Promissory notes of member banks are subject to stanp
taxes December first stop Efforts will be made to have
Congress exempt them, but pending action and until further
notice Board suggests that member banks obtain short time
advances from Federal Reserve Finks by reaiscounting eligible co
--iimercial paper of longer ma.turities, under repurchase
agreement by member bank on uhatever date may be agreed
upon stop Federal Reserve banks may adjust rebate of discount in advance so instead of deducting interest for full
period. of note when making credit in favor of member bank,
Reserve bank may charge interest only for the period covered
by the agreement, that is, from aate of discomt to date of
reparchase; or Reserve bank may credit member bank with full
amount of paper rediscounted at time transaction is made, and
on date of repurchase charge member bank with that amount plus
amount of discount earned up to nate of repurchase. Reserve
banks may purchase from member banks United States bonds and
Treasury certificates subject to repurchase agreement by member bank on given date.
Harding"
In its letter of December 1, 1917 confirming a telegram of November 28,
1917,_ regarding the stamp tax required on member banks' promissory notes,
The Board stated that "It should also be understood that the 'Federal rescrve
banks may further aid. the situation by purchasing, either from member or
non-member banks, notes or bonds of the United States under similar agrecments of resale." Under the authority contained in the Board's instructions
rresp
nce
FEDERAL RESERVE
BOARD
Subject_
?-84'tfi
- 2-
the Federal reserve banks have since been purchasing U.S. securities from
non-member banks and investment dealers under resale agreements, and it
has been the Board's policy to have the Federal reserve banks report U.S.
securities purchased by them under the resale agreements as securities
owned. Likewise, State bank and trust company members of the Federal Reserve istem have been advised that "Bonds, stocks, and securities sold
under repurchase agreements should not be included in the assets of the
bank but should be reported against memorandum item 'Securities sold under
repurchase agreements' below the body of the statement."
Instructions issued to National Banks by the Comptroller of the
Currency, however, have provided that "Securities sold with a repurchase
agreement represent a direct obligation of the bank for borrowed money
subject to the limit prescribed by sec ti an 5202 U.S. R.S. and must be
included in the amount of bills payable on the face of the report."
It is true that the object accomplished by selling securitie s under a
repurchase agreement is the same as that accomplished, by borrowing money
for a similar period on a collateral note, but as there is no authority
in the Federal Reserve Act under which the Federal reserve banks can
loan money to a non-meLiber bank or an investment dealer, it would seem
that securities purchased under a resale contract must be treated as
securities owned by the Federal reserve bank and the resale contract
as a collateral agreement. If the Comptroller's office is correct and
securities sold under a repurchase agreement are a direct obligation
for borrowed money, it would appear that the Federal reserve banks
cannot legally purchase securities under such agreements from nonmember banks and investment dealers.
During the period of the war the Federal reserve banks purchased
securities under resale ccntracts for the pa.rpose of assisting the
Treasury in financing its war experuitures anu the practice undoubtedly
was a material benefit to the Treasury. At the present time the shortdated debt of the Treasury has been taken care of and it probably
will
not be in the market for funds, except to anticipate tax payments, for
some time to come, and therefore the prime reason for authorizing Federal reserve banks to purchase securities under a resale contract from
non-nlember banks and investment dealers would no longer seem to exist.
The Federal reserve banks could of course support the market, if
necessary, by making outright purchases of U.S. securities from
nonmember banks and investment dealers, and by making loans to menber
banks as at present on their promissory notes collateraled by Government securities, vhich are not subject to stamp taxes.
In case, however, the Board should decke that the Federal reserve banks should be allowed to continue to make purchases of U.S.
Correspditence
FEDERAL RESERVE
BOARD
Subject:_
rorn
3
On
securities from non-member banks and investment dealers under resale
contracts, it is believed that the question should be taken up with
the Comptroller of the skirrercy with a view to having him adopt the
Board's interpretation of these contracts and instruct the National
banks which sell securities under resale contracts to exclide the
amcunt of such securities from their assets and report them as a
contingent liability, on the ground that the agreement to repurchase
is a collateral agreement and not in the nature of a bill payable.
jIt might be advisable, if this policy were adopted, to ask Counsel
(for an opinion which would renove any doubt now existing as to the
1
proper method of reporting such transactions.
The same principle is involved in purchases of bankers'
acceptances under resale contracts. The Federal Reserve Bank of
New York, we understand, feels that it is necessary to purchase
acceptances under resale contracts from non-member banks and investment dealers in order to support the acceptance market. In the past,
however, the hew York Federal Reserve Bank has not made a practice
of selling acceptaires in the New York market and the question
arises therefore as to whether the market could not be as well
supported by its freely buying and selling acceptances according
to market requirements, as by making purchases under resale agreements.
In order to give a general idea as to the extent to which securities and acceptances are purchased by the Federal reserve banks
under resale contracts, there are attached hereto two tables,
one showing the amount of Treasury certificates, Treasury notes,
and Victory notes purchased under resale agreements during May lV23,
and the other - the amount of bankers' acceptances taken under
similar agreements during the same month.
It will be noted from
the se tables that Salomon Bros. & Hutzler, the First National Corporation, The National City Company, The Discount Corporation,
The Shawmut Corporation, Scholl° Bros., The International Acceptance Bank, C.F.Childs and Company, and Bo nd and Goodwin are the
principal investment houses Ishich are selling securities and
acceptances to the Federal reserve banks under repurchase
agreements. It is quite likely that the ability to obtain funds
from
the Federal reserve banks under repurchase agreements enables a
number of the corporations named above to do a substantially
larger business than would otherwise be possible, and there
would undoubtedly be strong objections to discontinuing the
pre sent policy.
Correspaitence
FEDERAL RESERVE
BOARD
ate
Subject:
rom__
2--S495
-4
as stated at the beginninfs• of the memorandum, however, it
is thought that the \ienole question as to whether or not the Federal reserve banks should continue to purchase U.S. securities
and bankers' acceptances under resale contracts should be decided
by the Board before the question of reconciling the method of
reporting such securities by National banks and. by State bank
and trust company members of the System is taken up with the
comptroller of the Currency.
BANKERS' ACCEPTANCES PURCHASED BY THE FEDERAL RESERVE BANKS UNDER RESALE
COTTTRACTS DURING MAY 1923.
Total
Purchased from
First Nat'l Corp.
025,963,932
12,916,915
111
'onal City Co.
Salomon Bros.
and Hutzler
2,428,634
19,811,804
1,202,000
143,696
4,097,205
-
14,366,417
14,366,417
_
-
8,481,093
0105,000
-
,879,766
-
8,481,093
Scholle Brothers
41•0
509,528
Otis and Company
IIlards, Roloson & Co.
-
-
-
-
-
-
19,230
_
-
419,230
-
-
_
-
-
-
-
775,000
-
-
-
-
2,230,886
McAllister & Huttlinger
509,528
466,760
Curtis and Sanger
1,422,970
4,240,901
Discount Corporation
kantile Securities
Company
1,643,086
San Francisco
-
8,701,021
25,427,204
B nd and Goodwin
4,215,894
3,066,056
Shawmut Corp.
il
Purchased by Federal Reserve Bank of
Philadelphia Clevelandr Chicac o !St. Louis
,
New York
Boston
_
_
;1,683,209
45,392,706 $18,888,017
-
-
-
-
98,463,922
14,189,848
75,768,527
19,230
4466,760
775,000
-
466,760 3,803,905
11•••
-
-
-
2,230,886
105,000
4,110,652
TMASURY NOT3S, VICTORY NOT3S, AND TREASURY Cs2IRTIFICAT 22 PURCHAS‘:1) BY THE
RI3SARVIII BANZ_S UNIER RASALE CONTRACMDURING IlAY 1923.
FEMIRAL
Purchased from
Total
I Boston
Hutzler 42,663,850
Salomon Bros. and
First 1, ationa1 Corp.
T
16,401,250
Purchased by Federal Reserve Bank of
I New York ! Chicago Ipinneapolis Kansas City !
:50,149,000 -)2,534,850
2,279,150
5,851,300
8,270,800
Dallas
WOO
rnational Acceptance
-
-
li
g
C. F. Childs & Co.
5,459,500
-
-
5,459,500
-
-
Halsey Stuart & Co.
2,089,100
-
-
2,089,100
-
-
Shawmut Corp.
1,627,000
-
1,627,000
-
_
_
603,000
_
803,000
-
_
Scholl
Bros.
5,600,000
-
5,600,000
•••I
C. D. Parker & Co.
240,000
240,000
_
_
_
-
_
Central National Bank
Topeka, Kansas
220,000
-
-
-
-
%220,000
-
2,250,000
_
_
_
2,250,000
-
-
F 'ral Land Bank,
't. Paul
il
Federal Land Bank, Omaha
San Antonio Joint Stock
Land Bank
500,000
500,000
cri1,600,000
1,600,000
89,473,700
2,519,150
*Iicludes c125,000 of U. S. bonds.
64,030,300
18,364,250
2,250,000
720,000
1,600,000
f EDERAL RESERVE BOARD
-
WASHINGTON
X-3689
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 7, 1923.
SUBJECT: Policy Governing Open Market Purchases by Federal Reserve
Banks and the Administration thereof.
Dear Sir:
This is to advise you formally of the action of the Federal
Reserve Board taken at its meeting of March 22nd, with
respect to open
market purchases by Federal Reserve Banks, and
which was discussed at the
recent conference between the Federal Reserve Board
and the Governors of
the Federal Reserve Banks.
The Board has adopted the following principles with respect
to
open market investment operations of the rederal Reserve
Banks:
(1) That the time, manner, character and volume of open market
investments purchased by 1Sera1 Reserve Banks be
governed with primary
regard to the accommodation of commerce and business
, and to the effect of
such purchases or sales on the general ctedit situatio
n.
(2) That in making the selection of open market purchases,
careful regard be always given to the bearing of purchase
s of United States
Government securities, especially the short-dated issues,
upon the market
for such securities, and that open market purchase
s be primarily commercial
investments, except that Tr_earary...rax:t1119'ates_be dealt in, as at present'
,
under so-called "Repurchase" agreemen
t*.
In order to provide for the proper administration of the poli0
defined above, the Board rules that on and after April 1, 1923, the present
Committee of Governors on Centralized Execution of Purchases and Sales of,
Government securities be discontinued, and be superseded by a new committee
known as the Open Market Investment Committee for the Federal Reserve Sy§tamA
.
said committte to consist of five representatives from the Federal Reserve
Banks and to be under the general supervision of the Federal Reserve Board;
and that it be the duty of this committee to devise and recommend plans for
the purdhase,sale and distribution of the open market purchases of the
Federal Reserve Banks in accordance with the above principles and such regulationc as may from time to time be laid down by the Federal Reserve Board.
•
•,V
nt.
.0a
yr
-2-
X-j6S9
In accordance with the informal agreement made at the time of'
the last Governors' Conference, the membership of the Open Market Investment Committee for the Federal Reserve System, will be identical
with the membership of the old Committee, as follows:
Federal
Federal
Federal
Federal
Federal
Reserve
Reserve
Reserve
Reserve
Reserve
Bank
Bank
Bank
Bank
Bank
of
of
of
of
of
Boston
New York
Philadelphia
Cleveland
Chicago
By order of the Federal Reserve Board.
Vim. W. Hoxton,
Secretary.
To Governors of Federal Reserve Banks.
Copies to Agents.
t•
riarch 16, 1923.
AJ.13
U.S. Securities take
under Repurchas
.1k7e(mcnt.
T:
...
Dear Sir:
in reply to your letter of ',,Larett, 6,
19.2.3, 1 beg to advise th..A vinenever the bank
enters into an agreement to extend the maturity of a repurchase agree:rient, the transaction
should be reported on an investment schedule,
5-2, in the same manna' as an original transact ii:' and the amoulit thereof should be ineluded arnong the bank's iniestravIt op,rations
as reported on Eorra
Very truly yours,
L.
(Slgrned E'
;hief,
L'ivision of Bank iperatirins.
Erect Harris,
‘tssistant .;ashicr,
iederal Reserve Bank,
Dallas, itxas.
EDERAL
OP
,1
RESERVE ir ANK
_um 41 .
OF DALLAS
—L7
LOAN AND DISCOUNT DEPARTMENT
FRED HARRIS
ASSISTANT CASHIER
March 6, 1923
,eserve Board
Federal 7ashinqton, D. O.
Gentlemen:
Attention, Tr. E. L. Smead, 3hief
Division of Bank Operations
?lease refer to our schedule Mo. 1-431,
dated January 12, 1923, covering the purchase of
Gold Motes, Series
1,100,000 U. S. Treasury 4
B-1926, from the San Antonio Joint Stock.Land Bank
under an agreement to repurchase said notes under
date of :,:arch 13, 1923. This bank has recently
entered into an agreement with the Ban Antonio Joint
Stock Land Bank to extend this repurchase agreement
for sixty days, to :,lay 12, 1923.
As this is our first experience in handlin„E
an extension of a repurchase agreement, we are in
doubt as to whether or not your office requires
another schedule, but assume that this information
will be all that is required. In the event, however,
that this is not satisfactory, it will be appreciated
if you will advise us your wishes.
Yours very truly,
d
Lssictant
PF:t
ashier
For
8
410
TELEGI30
FEDERAL- RESERVE BOARD
LEASED WIRE SERVICE
WASH I NGTON
4110
1_2
Janu9ry 4, 1 27.
Ramsay, 'Kansas City
your today
telecrfea, Liberty
bonds taken tinder cc4i-,urorAns3 acraement sheJoeld be carried
at aracrunt advc.ncoii and ropodod
aolnet oode BIFK.
sf.'
63N1k
m
401) TELEGRAM
••••=0
•
FEDERAL RESERVE SYSTEM
(LEASED WIRE SERVICE)
RECEIVED AT WASHINGTON, D. C.,
145fs lc
EansasCit: Jail 4 115411
Loard
,
reference our 34 Jiro 3r
Your wire date \
,;593,000 is amount advanced
as purchase of 0600,000 par value Liberty Bonds with agreement to
resell at araotait advanced plus interest shou1d. we report amount
advanccd. or par value as Bisk and if par value in what account
61iould
difference be carrie6. and should it be amortized
2-11901
1211
ro.11 148
6
41110
LEGRAM
•
FEDERAL RESERVE BOAR
LEASED WIRE SERVICE
WASH I NG'TON
a--94641
L."
January 4, 192.
Ramsay, Tc.inses City.
Your Fort.134 te1er5rart shows .69%000 U.
under sales contract.
seenrities held
/.esse distribute these securities against
itoos BRZ to EWE, and wire necessary edjustments.
MAD.
@FedFRASER